Interest on taka bonds to be less than 5pc: Muhith

The first-of-its-kind $1 billion taka-linked bonds to be issued by the government and the International Finance Corporation will mostly be used by the private sector, Finance Minister AMA Muhith said.

The interest rate on the money of the bonds will be linked with LIBOR and it would be less than 5 percent, Muhith told reporters after a pre-budget meeting with secretaries.

A team of the IFC, the World Bank's private sector financing arm, led by its Executive Vice-President Jin-Yong Cai, floated the idea of the taka bonds to Muhith on April 19 in a meeting on the sidelines of WB-IMF spring meetings in Washington DC.

Muhith said the bonds will be floated on all capital markets around the world -- not just on the London Stock Exchange.

The IFC launched a similar bond programme for India in October 2013. The bond proceeds from dollars were converted to rupee on the domestic exchange market.

The proceeds of the $1 billion rupee bonds were used by the IFC to finance private sector investment in India.

However, the finance minister said the government can use the funds raised for the budget or disburse it to the private sector.

“I don't need it in my budget, so it will be used in the private sector,” Muhith said, adding that a guideline has to be formulated on how the funds will be used in the private sector.

He said the funds are likely to be channelled to the private sector through Bangladesh Bank. It will be specified in which sector the money would be used so that the amount is not wasted.

The finance minister also said the bonds may be launched after June, as two to three months is required for preparatory work.

At first, the IFC suggested launching $500 million bonds, but the government proposed raising the initial amount to $1 billion.

Other than the rupee, the IFC has also raised local currency bonds in Chinese, Russian and Brazilian currencies.