Dollar bond rates hiked 2% to attract investment

For investments up to $100,000 in three different terms, the finance ministry has increased the interest rates for the US Dollar Premium Bond and US Dollar Investment Bond by up to 2% and 1.5%, respectively.

Banking sector insiders and economists say the initiative aims to boost the inflow of dollars into the country by attracting investments from the Bangladeshi diaspora and foreign citizens of Bangladeshi origin.

According to a notification issued on Sunday by the Internal Resources Division under the finance ministry, for the premium bond, the rates have risen to 6.50% for the 1-year term, 7% for the two-year term, and 7.50% for the three-year term.

For the investment bond, the rate for the 1-year term has been increased to 5.50%, followed by a 6% rate for the two-year term and a 6.50% rate for the three-year term.

Buyers can purchase the bonds from the Authorized Dealer Branches of any bank in the country or Bangladeshi bank branches located abroad, as well as from exchange houses.

According to the finance ministry circular, the new investment of a subscriber will be calculated by adding up the previous investment. However, the rate of interest on the investment will be applicable at the rate at the time of purchase. In addition, the investor can receive a report of the investment in dollars or taka.

Bangladesh Bank data show the net sales of the US Dollar Premium Bond stood at Tk1.5 crore in FY21, and for the US Dollar Investment Bond, it stood at Tk84 crore negative. This means that more principal and interest have to be paid than the amount of new investment that came in that year.

Additionally, the net sales of the US Dollar Premium Bond and US Dollar Investment Bond were negative at Tk103 crore and Tk876 crore, respectively, in FY22.

During the July-October period in the FY24, the net sales of the US Dollar Premium Bond and US Dollar Investment Bond were negative Tk11 crore and Tk86 crore, respectively. That is, the government has to pay more than the amount of money it is getting by selling these two bonds.

Internal Resources Division Senior Assistant Secretary Tarek Mohammad Zakaria told The Business Standard that various countries around the world, including the United States, the United Kingdom, and Europe, are raising interest rates.

"As a result, to attract investment from expatriates to the country, it is now time to increase the interest rates. That is why the government has raised the interest rates on the two bonds," he added.

It is also in line with the government's willingness to provide additional benefits to expatriate Bangladeshis, he said.

Earlier, the central bank proposed to the finance ministry that the interest rate on all three bonds be increased by 2%.

Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank, said the central bank proposed raising interest rates on diaspora bonds in line with the international market.

Speaking with TBS, an expatriate investor said that when interest rates rose globally, Bangladesh bucked the trend by offering lower rates, which contributed to widening the financial account deficit further.

Before 2022, interest rates for dollar bonds were more favourable than global rates. Even then, investments did not reach the anticipated level due to a lack of public awareness, the Bangladeshi expatriate said, attributing this shortfall to the government's inadequate marketing efforts, which have left wage earners uninformed about these lucrative investment opportunities.

The country's three diaspora bonds could have played a crucial role in alleviating the dollar crisis by incentivising remittances through official channels. However, the government's failure to adequately promote these saving instruments to wage earners hindered their effectiveness, the expatriate investor added.

The total outstanding investment in all three government-issued bonds for non-resident Bangladeshis, including wage earners bonds, US dollar premium bonds, and US dollar investment bonds, stood at less than $1 billion at the end of the FY23 which was nearly $3 billion in the FY22, according to Bangladesh Bank data.