Investments in expat bonds dip amid fluctuating dollar, low returns
Bangladeshi expats cut purchases of three government bonds, increase redemptions
Net investment by expatriates in three government bonds decreased by $49 million in January-October 2022, according to the Bangladesh Bank, owing to slashed premium security offer amid a volatile domestic dollar market.
Already squeezed by rising commodity prices across the globe, expats opted for the formal banking channel to send the amount they managed to save to their homes.
The transactions meet with a 2.5% government incentive, which, according to economists and bankers, Bangladeshis found more profitable than investments to the low-return bonds.
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There are three bond savings schemes for expatriates – Wage-Earner Development Bond, US Dollar Premium Bond, and US Dollar Investment Bond. These had been offering premiums ranging from 6.50% to 12% at three to five years' maturity until April 2022 as interest was trimmed by 44% on average.
The managing director of a bank pointed out that expats were unclear about the redemption – whether they would get the current dollar rate or the old one when they made the investment.
"So, as the US dollar continued to rise last year, many expats chose to send remittances through banking channels rather than investing in bonds. Besides, some chose to invest abroad as the returns were higher," he told The Business Standard on conditions of anonymity.
Mezbaul Haque, spokesperson and executive director of the central bank, said investment and redemption of the Wage-Earner Development Bond is in local currency, while they are in dollars for the other two. The redemption of the US Dollar Premium Bond and the US Dollar Investment Bond follow the dollar rate on the investment date.
He attributed the plummeting bond investments by expats to a rise in bond gains in the international market.
Like the central bank spokesperson, Mustafizur Rahman, distinguished fellow of the Centre for Policy Dialogue (CPD), does not believe bond investments decreased due to interest trimming. Rather, he argued, the fluctuating dollar market is the key reason for the fall in bond investments.
According to data from the central bank, net sales of Wage-Earner Development Bonds decreased by $35 million until October 2022. The previous year net sales of these bonds were $107 million, while in 2020 they were $135 million. In 2019 and 2018, the net sales were $125 million and $200 million, respectively.
Net sales of US Dollar Investment Bonds were negative $14 million until October 2022. In 2021, net sales of this bond were negative $9 million, and in 2020 the net sales were $22 million. In 2019 and 2018, the net sales were $25 million and $22 million, respectively.
Net sales of US Dollar Premium Bonds were $2.16 million until October 2022. It was $0.2 million in 2021, negative $1 million in 2020, $1.95 million in 2019 and $36 million in 2018.
The five-year Wage-Earner Development Bond was introduced in 1988 and the three-year US Dollar Premium Bond and US Dollar Investment Bond in 2002. The bonds can be bought and redeemed from all offices of the Bangladesh Bank, its foreign branches, exchange houses, exchange companies, and local authorised dealers (branches of the banks that deal with foreign currency).
The money invested in these three bonds and the profits earned are income tax-free. These bonds also have loan facilities against them. Furthermore, they provide the facility of investing in multiple periods.
An analysis of bond data shows that there was previously a positive trend in investment before the pandemic. At the time, there was no investment ceiling.
However, in December 2020 the government imposed a maximum investment limit of Tk1 crore per person in those bonds. Additionally, it became mandatory to have a National Identity Card (NID) in order to purchase these bonds.
While this investment limit was lifted in April 2022, interest was also reduced by nearly half. The requirement for an NID has since been lifted again.
The Wage-Earner Development Bond now offers 9% interest while the previous rate was 12%. The US Dollar Premium Bond offers 3.50% than the previous 7.50% and the US Dollar Investment Bond 3% than earlier 6.50%.
Mohammad Shah Alam, Director of the National Savings Directorate, said interest trimming led to the plummeting investments as they now plan road shows abroad to popularise the securities.
