Cabinet approves $10bn sovereign fund

The government has approved a proposal for launching a Bangladesh Sovereign Wealth Fund of $10 billion, with a view to making the fund useful during periods of emergency.

The approval was given in the regular cabinet meeting held at the secretariat on Monday, with Prime Minister Sheikh Hasina in chair.

After the meeting, Cabinet Secretary Shafiul Alam said the authorised capital will be $10 billion and its primary capital will be $2 billion.

“We have discussed that the fund will be used for big infrastructure projects and multiple purposes, including repayment of any loans taken by the government in dollars,” he said.

The cabinet secretary added that the legal framework for the fund will be fixed later.

He said every year the fund will add $2 billion from the country’s foreign exchange reserves, which currently sits above $32 billion.

According to the proposal, it is expected that the sovereign wealth fund will hit the bond market on July 1, if everything goes as planned.

The government will buy foreign exchange reserves  in the local currency and transform it into bonds and treasury bonds.

The bonds will be traded in the Bangladesh Bank ‘s auctions under the existing legal framework of the bond market.

On the first week of 2014, the Finance Ministry decided in principle to issue $2bn-worth of sovereign bonds from 2015, to collect funds for major infrastructure projects like the Padma Bridge.

The plan never saw the light of the day as, two weeks later, Finance Minister AMA Muhith vetoed it in consideration of the low interest rate the sovereign bond market was offering at the time.

Also, in 2011, the government made the move to issue sovereign bonds to raise $500m from the international market to implement development projects, because of poor availability of soft loans from donors. But it abandoned the plan after identifying risks that included appreciation of local currency against the dollar and falls in soft loans from donor agencies the previous year.

In 2014, US-based investment bank Goldman Sachs and German Deutsche Bank AG had offered to raise up to $3bn in funds for the Bangladesh government from the international bond market by issuing sovereign bonds.

Bangladesh is one of the “Next 11” countries identified by Goldman Sachs in 2005 as a fast growing economy.

source: Dhakatribune