The International Monetary Fund (IMF) has acknowledged Bangladesh’s significant progress in developing its local currency bond market, according to its latest Global Financial Stability Report, released today.
The multilateral lender highlighted that, in response to rising financing needs and declining concessional flows, Bangladesh has prioritized local currency bond market development as a key policy objective. Foundational reforms, supported by conditionality within the current IMF program, have resulted in measurable market growth, though some structural challenges remain.
In 2023, a joint diagnostic mission led by the IMF and the World Bank identified major distortions that had previously hindered price discovery and overall market development. These included the use of interest rate caps, heavy reliance on costly, nonmarketable domestic debt through National Savings Certificates (NSCs), and the central bank’s active participation in bond auctions.
In response, Bangladesh implemented critical reforms to modernize its financial system. A key change was the shift to an interest rate-based monetary policy framework. In addition, the government removed the lending rate cap and eliminated the central bank’s purchases of government bonds—measures essential for enabling market forces to determine pricing.
To improve market transparency and access, authorities introduced quarterly issuance calendars and began publishing a daily secondary market yield curve. Over-the-counter and stock exchange trading platforms were also established to enhance market access.
The government also addressed the fragmentation caused by subsidized government debt, with reforms mandating that NSC rates be linked to market yields starting in 2025. Further reforms focused on the primary dealer framework, with guidelines introduced in June 2025 to remove underwriting obligations and emphasize core market-making activities for primary dealers.
These reforms have led to positive results in Bangladesh’s bond market. From 2019 to 2024, the nominal stock of marketable bonds doubled, and benchmark bonds now exceed $500 million. Notably, Bangladesh has been included in the FTSE Frontier Emerging Market Bond Index, an international recognition expected to attract greater foreign investment into the local bond market.
