Govt issues bonds to pay off Tk3,316cr bank debts against fertiliser subsidies

The finance ministry has issued two bonds worth Tk3,316 crore to two banks to clear debts from outstanding fertiliser subsidies. 

State-owned Sonali Bank received a bond worth Tk2,557 crore with a nine-year maturity period and the private IFIC Bank got a bond worth Tk459 crore with an eight-year maturity period, according to ministry officials.

On Wednesday, the ministry signed a separate memorandum of understanding (MoU) with the banks.

Facing challenges with immediate cash flow, the government has proactively chosen to issue bonds to cover bank debts accrued from unpaid subsidies in the power and agriculture sectors till June 2023.

To settle bank debts totalling Tk20,000 crore, the finance ministry will issue bonds to 40 banks in phases in this fiscal year, offering a 7.7% coupon or interest rate matching the Bangladesh Bank repo rate, according to ministry officials.

Finance Division officials said banks will be able to maintain their Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements with the Bangladesh Bank aside from getting interest at a fixed repo rate against these bonds. At the end of a bond's tenure, the government will take it back by paying the money with interest. However, a bond's tenure for each bank will be different.

As of last June, the amount of outstanding subsidy in the fertiliser and power sector is about Tk42,000 crore. Of that, bank debts amount to Tk25,500 crore.

Power producers' bank debt stands at around Tk15,000 crore and fertiliser importers' debt is Tk10,500 crore.

Of Tk25,500 crore bank debts, Tk20,000 will be paid through bonds. For smaller electricity subsidy debts (below Tk10 crore), bond issuance is excluded.