IMF hails Bangladesh's major progress in local currency bond market reforms

The International Monetary Fund (IMF) has praised Bangladesh for making significant strides in reforming and developing its local currency bond market, marking a major step forward in strengthening the country’s domestic financial system.

In its Global Financial Stability Report released Tuesday, the IMF highlighted that Bangladesh, faced with rising financing needs and declining concessional inflows, prioritized the development of its local bond market as a key policy goal.

The report noted that foundational reforms — undertaken as part of the ongoing IMF-supported program — have resulted in measurable market expansion, even as some structural challenges remain.

A joint IMF–World Bank diagnostic mission in 2023 identified several key obstacles that had previously hindered market efficiency and price discovery, including rigid interest rate caps, overreliance on costly National Savings Certificates (NSCs), and the central bank’s participation in bond auctions.

In response, Bangladesh launched a series of critical reforms to modernize its financial framework. One of the most significant changes was the shift to an interest rate–based monetary policy system. The authorities also removed the lending rate ceiling and halted central bank purchases of government securities — steps that allowed market forces to play a greater role in determining bond prices.

To enhance transparency and investor confidence, the government introduced quarterly issuance calendars and began publishing a daily secondary market yield curve. Market access was further broadened through over-the-counter and stock exchange trading platforms.

Reforms also addressed the market distortions caused by subsidized government borrowing. From 2025 onward, NSC interest rates have been linked to prevailing market yields. Additionally, in June 2025, updated primary dealer framework guidelines were introduced — removing underwriting obligations and focusing instead on strengthening core market-making activities.

These sustained efforts have already shown tangible progress. Between 2019 and 2024, the total nominal stock of marketable bonds in Bangladesh doubled, with benchmark issues now exceeding $500 million.

In a major milestone, Bangladesh has also earned inclusion in the FTSE Frontier Emerging Market Bond Index — a development expected to attract increased foreign investment and further deepen the country’s local bond market.