The Asian Development Bank (ADB) encouraged Bangladesh on Saturday to use the more than $553 million it has provided in loans to develop a capital market and attract private investors. Bangladesh aims to become a middle income country (MIC) by 2021. "A well-functioning capital market can catalyse private sector investment in infrastructure and other sectors creating employment and economic growth," Kazuhiko Higuchi, the ADB's country director in Bangladesh, told Reuters in an interview.
The ADB has been supporting government efforts to develop the capital market in Bangladesh for more than two decades and has recently signed agreements with the government for the third such programme, he said. This will support policy actions to strengthen the capital market regulator, boost institutional investor demand, broaden the supply of financial instruments, and promote a more liquid government bond market, Higuchi said, supporting the drive for middle-income status.
Last month 28 representatives of Bangladesh's development partners, meeting in Dhaka, said the government should raise spending on infrastructure to $12 billion annually, particularly for energy, transport and ports, and aim to attract private sector investors rather than depending on aid. During this meeting the ADB promised $5 billion in loans to Bangladesh from 2016 to 2018, mainly to improve infrastructure. "A strong and well-functioning capital market can help to boost the funds dedicated for the infrastructure development sector," Higuchi said.
The government has outlined measures to improve the transparency and efficiency of the capital market and encourage private sector financing in a five-year plan to June 2020. Higuchi said Bangladesh has made some progress in developing its capital market but needs to do more to strengthen its regulation. "The market participants need to adopt information and communication technology for enhanced effectiveness, efficiency and transparency," he said.
He suggested ways to broaden and deepen the capital market, including bringing in international strategic investors as shareholders, which would help to improve governance and technology, and more institutional investors, such as insurance companies. It could also tap into demand for Islamic financial instruments. "The capital market lacks the desired depth and breadth because of an absence of alternative financial instruments, such as derivatives and Sukuks, a Sharia-compliant bond," Higuchi said. He said demand for securities is also hampered by unreliable accounting and auditing of listed companies, and the ADB has been working closely with the government to raise reporting standards.