A package reform billed for bolstering the treasury-bond market could not help as the national savings certificates became hotcakes compared to bland bonds, analysts say.
The government has so far played seven cards in its bid to prop up the bond market. A major one lifted a one-year lock-in system applied on foreign investors to retain them after investing in government securities.
It also waived taxes at source on all types of government securities as a bait to attract investment in the bonds.
As another reform measure the government of late introduced a new 14-day bill meant for widening the bond-market base.
People familiar with the developments at the Ministry of Finance told the FE in the past week that all measures undertaken by the government could help little in stimulating the market.
They, however, argue that a surplus in government's consolidated fund lessened its need for borrowing from the banking system -- and thus cast a damper on the T-bonds.
"We had Tk 35.87 billion in surplus at the end of August," said one official at the ministry that holds government's purse strings.
"If we don't borrow, how will it be expanded?" He posed a question about the treasury-bond sluggishness.
The savings instrument already met its nearly 40 per cent annual target in just three months to September.
On the other hand, the government in real senses had not borrowed from the banking system in two months up to August.
Government bank borrowing in the July-August period counted a negative tally of Tk 1.46 billion notwithstanding its having a target of Tk 389.38 billion till June 30 next.
People at the central bank said the government many times had postponed deadlines for auctions which usually take place at the central bank.
They said the 14-day bill is not regular product rather it will be sold upon government's short-term requirement of funds.
On the other side, slow bank borrowing is causing shortage of government bonds on the money market.
Golam Hafiz Ahmed, managing director and CEO at the private-sector NCC Bank, told the FE that the banks want to buy bills and bonds as they need to invest mandatorily.
"We need bonds but government is not borrowing," said Mr Ahmed, whose bank is a member of the primary dealers who participate in government securities auctions.
He said the government has taken many mega projects but it is not borrowing for funding.
The NCC Bank MD felt the need for expansion of the bond market especially at the secondary level.
Nurul Amin, managing director and CEO at Meghna Bank, told the FE that the government itself ought to prepare effective plans for its expenditures.
"They (government) made a target of over Tk 300 billion in recent years but at the end of the fiscal year they actually borrowed Tk 40 to 50 billion." He also said the secondary-market development should be an ideal option for effectively activating the bond market.
"There are some bonds in the secondary market, but they are hardly traded," Mr Amin commented about the paradox.
He says not only government but also private companies will also be able to mobilise funds from bond market for their long-term projects.
Banks provide loans for up to five years to the private players but bonds have long maturities of 10-20 years.
However, the government also recommended an expenditure plan on monthly basis and speeding up execution of the annual development programme.
It took note of the fact that people have no second choices but to invest in the government savings certificates.
The government in its reforms also raised the underwriting commissions for the primary dealers. It is also allowing non-resident investors' taka account (NITA) along with non-resident foreign-currency account for the investors.