The International Monetary Fund (IMF) has noted that Bangladesh has achieved a significant progress in the development of local currency bond market.

The multilateral lender in its Global Financial Stability Report released today observed that confronted with higher financing needs and falling concessional flows, Bangladesh identified local currency bond market development as a policy priority.

Foundational reforms, supported by conditionality within the current IMF program, have led to measurable market growth, though key structural challenges persist.

In 2023, a joint diagnostic mission conducted by the IMF and the World Bank identified several major distortions that had previously hampered price discovery and overall market development.

These included the use of interest rate caps, heavy reliance on costly, nonmarketable domestic debt via National Savings Certificates (NSCs), and the central bank’s active participation in auctions.

Bangladesh subsequently initiated and implemented critical reforms aimed at modernizing its financial architecture.

A major shift involved the transition to an interest rate-based monetary policy framework.

Concurrently, authorities removed the lending rate cap and eliminated central bank purchases of government bonds.

These steps are crucial for allowing market forces to determine pricing.

To improve transparency and access, authorities introduced quarterly issuance calendars and began publishing a daily secondary market yield curve. Market access has also been expanded through over-the-counter and stock exchange trading platforms.

Addressing the fragmentation caused by subsidized government debt, reforms mandated that NSC rates be linked to market yields starting in 2025.

Furthermore, follow-up technical assistance guided reforms on the primary dealer framework guidelines in June 2025, which focused on removing underwriting obligations and emphasizing core market making activities for primary dealers.

These sustained efforts have yielded positive results in the bond market. Between 2019 and 2024, the nominal stock of marketable bonds doubled. Benchmark bonds now exceed $500 million.

Crucially, Bangladesh has secured inclusion in the FTSE Frontier Emerging Market Bond Index. This international recognition is expected to attract greater foreign investment into the local market.