Bangladesh’s debut sovereign bond: Why it costs more to borrow from

Highlights:

• Bangladesh plans its first sovereign bond, targeting up to $1 billion.
• Expected 8% interest makes borrowing far costlier than World Bank loans.
• Ending the IMF programme could weaken investor confidence and raise borrowing costs.
• High foreign debt repayments increase risks from bonds requiring full repayment.
• Guaranteed Panda and Samurai bonds could offer cheaper financing despite currency risks.
• Experts recommend smaller bond issuance, stronger reforms, transparent data and prudent spending.

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For the first time, Bangladesh is preparing to borrow directly from investors around the world, aiming to raise up to $1 billion by December through a sovereign bond. It is a real milestone, but it comes at a price: the bond would likely cost about 8% a year in interest, roughly four times what the country pays the World Bank for its cheapest loans.

For Finance Minister Amir Khosru Mahmud Chowdhury, the bond is part of a bigger shift. At World Investor Week in Dhaka on 4 October, he announced that the government had ended its IMF loan programme because it found the conditions unacceptable. Bangladesh, he said, would no longer run its economy on money from the IMF, and would instead raise funds through bond and stock markets at home and abroad. The country needs around $50 billion a year, far more than development lenders can provide.

The argument has real force: development lenders attach politically painful conditions, and their money arrives slowly. The government also says it will be careful not to overpay.

The minister also deserves credit for taking Bangladesh's case directly to Wall Street. In late September he and Prime Minister Tarique Rahman met BlackRock, PIMCO, TPG, Macquarie, GoldenTree, and MetLife at a JP Morgan breakfast in New York, and JP Morgan has since been approved in principle as lead manager. Opening that door is the hard first step; keeping investors' confidence will depend on what follows at home.

"Compared with the World Bank's cheapest loans, the bond would cost roughly $60 million more a year, or about $300 million over five years, for every $1 billion borrowed"

The market may see things differently. Many investors treat an IMF programme as a seal of approval: proof that someone independent is checking the books. Without it, they are likely to ask for higher interest. Ending the programme may also affect some World Bank and ADB budget support tied to IMF reviews. And $1 billion covers only a small part of the $50 billion a year the minister says the country needs.

A bond is simply a loan that can be bought and sold. The government borrows from investors and promises to pay interest every year and repay the full amount on a fixed date.

If Bangladesh sells a five-year bond for $1 billion at 8%, it receives $1 billion today, pays $80 million in interest each year, and repays the whole $1 billion at the end of year five.

Until now, Bangladesh has borrowed abroad mainly from development lenders such as the World Bank, ADB, and Jica, whose cheap, long-term money comes tied to conditions and projects. Bond money comes from private investors, can be used more freely, and is priced by the market.

The interest rate has two parts.

Part one: the starting price of money. Investors measure every loan against US Treasury bonds, issued by the world's safest borrower. Five-year Treasuries now pay about 5%, up sharply from about 4.4% in August, which makes everyone's borrowing more expensive.

Part two: the extra charge for risk. Investors then add a premium for lending to Bangladesh instead of the US, much as a bank charges a new customer with a few warning signs more than one with a long, clean credit history.

Bangladesh looks like that new customer, for three reasons:

• It has never issued a sovereign bond. There is no track record for investors to judge.
• Its credit rating is low. The major agencies grade Bangladesh B+ or B2, below investment grade, and two warned this year that it could fall further.
• It has warning signs at home. Its banks hold large bad loans, and ending the IMF programme removes a seal of approval many investors look for.

Together, these add roughly 3 percentage points. On top of the US rate of about 5%, Bangladesh is likely to pay about 8% a year, give or take half a point, and more likely at the higher end without an IMF programme.

Here is what it costs each year to borrow $1 billion from each source:

Compared with the World Bank's cheapest loans, the bond would cost roughly $60 million more a year, or about $300 million over five years, for every $1 billion borrowed.

The repayment schedule matters as much as the rate. A World Bank loan is paid off slowly over decades, like a home loan; a bond falls due in full on one day. If that day arrives when reserves are low or markets are nervous, refinancing can become very difficult. Bangladesh's foreign debt repayments are already at a record high and are expected to keep rising until about 2029.

Two loans approved on 7 October show these prices. For fuel and gas imports, the government is borrowing $3.1 billion from the International Islamic Trade Finance Corporation at about 5.4%, but only for six months at a time. The Asian Development Bank is lending $200 million for rural power lines around Dhaka at about 4.3% over 25 years. Even after leaving the IMF, Bangladesh still depends on such lenders.

Bangladesh could also borrow in Chinese yuan through a Panda bond in China, or in Japanese yen through a Samurai bond. With interest rates much lower in China and Japan, these look far cheaper at first glance.

A committee is already studying a Panda bond, and the central bank governor has backed a small first issue of about $50 million. Pakistan, rated lower than Bangladesh, borrowed about $250 million in yuan for three years at just 2.5% in May 2026, and the issue was five times oversubscribed.

There are two catches.

First, the low rate usually needs a guarantor. Pakistan's bond was backed by the ADB and the Asian Infrastructure Investment Bank. In Japan, investors generally lend to countries like Bangladesh only with a guarantee from a state bank such as JBIC, as with Côte d'Ivoire and Mexico. Without a guarantee, much of the saving disappears.

Second, currency risk. If the yuan or yen rises against the taka and the dollar, the debt becomes more expensive to repay. A currency swap can protect against this, but it costs money and pushes the real cost back up to roughly 5.5% to 6.5% in dollar terms (estimate).

So, Panda and Samurai bonds can genuinely lower costs, mainly because of the guarantee rather than the currency. 

If the World Bank is so much cheaper, why issue a bond? Because it buys things the World Bank cannot provide.

• A price tag for Bangladesh. A traded government bond sets a reference price, helping Bangladeshi banks and companies borrow abroad.
• New lenders. Global pension funds, insurers and investment firms could lend to Bangladesh for the first time.
• Preparing for life after cheap loans. Bangladesh is due to leave the UN's list of Least Developed Countries in November 2026, though it has asked for a delay until 2029 and a decision is pending. Either way, cheap development loans will shrink over time, and it is better to learn market borrowing while things are calm than in a crisis.
• Discipline. A bond's price moves every day. If reforms stall, borrowing costs rise in public view.

What the bond should not be is a replacement for World Bank and ADB money. A low-rated country cannot swap about $4 billion a year of cheap, long-term loans for expensive, short-term market debt. Sri Lanka leaned heavily on market borrowing and defaulted in 2022.

The bond is worth doing if it is done carefully. Five rules would help keep the cost down:

1. Replace the IMF's seal of approval with its own. Investors will want other proof of good management: a published debt and reform plan, regular and honest economic data, and clear progress on the banks.
2. Start small. $500 million to $750 million is enough to set a price without taking on too much expensive debt.
3. Use the money wisely. Pay off more expensive debts or strengthen reserves, rather than fund day-to-day spending.
4. Seek guarantees for Panda and Samurai bonds. Small, guaranteed yuan and yen bonds can lower the average cost of borrowing.
5. Keep fixing the basics. The cheapest way to borrow is to become a safer borrower: collect more tax, clean up the banks and restore growth.

Done this way, Bangladesh's first global bond can open a door. Done in a hurry, it becomes an expensive way to borrow money the country could have had for less.