The Asian Development Bank (ADB) will provide an additional USD 250 million to Bangladesh under “Third Capital Market Development Programme (CMDP III)” as budgetary support to revamp its capital market, according to sources at the Economic Relations Division (ERD). The negotiations for the fund are about to be finalised soon.However, the Bangladesh government has pledged to fulfil at least 26 conditions regarding capital market reforms against the budgetary support.The ADB will disburse the budgetary support in two instalments. As per its suggestions, the government will have to fulfil eight conditions within eight months of a commercial agreement. As many as USD 80 million will be disbursed in the first instalment. The government will receive the remaining USD 170 million after implementing the remaining 18 conditions by December 2017. Earlier, a Manila-based regional lender had provided USD 300 million under the second CMDP in two instalments. At that time, the government had to implement 28 conditions, which it fulfilled recently.The ERD will discuss fund negotiation with the ADB’s Dhaka office on August 8 and 9. The full agreement is likely to be inked by September this year. As per the proposed conditions, the government will have to reform some rules and regulations regarding the capital market. It must also strengthen the security exchange commission, including increasing manpower. Besides, the ADB proposed to make reforms to some laws of IRD and Bangladesh Bank relating to the capital market. The bank will provide an additional USD 70 million in this regard. By the end of 2014, CMDP-II was successfully implemented and completed. Three factors accounted for its success: strong ownership of the reforms by the government, effective policy dialogue and communication with key stakeholders in the government as well as the market level, and a willingness of all parties concerned to work together for a greater cause. While market reforms are largely viewed as a process that takes time before its impact is noticed, there have been very important and visible achievements under CMDP-II in market development and stability within a relatively short period. The following presents a few of these achievements: the ADB suggested that the government include increased liquid benchmark issues through introduction of floating rate notes, enhance insurance industry participation in the capital market by issuing investment guidelines of the Insurance Development and Regulatory Authority (IDRA), make improvements in the settlement and clearing system, and promote alternative financial instruments to develop a deeper and broader capital market. The government embarked on a programme of meaningful reforms and was partnered by the ADB under the CMDP-II in November 2012. The programme is based on a two-track approach that seeks to put firewalls in place to support market stabilisation and plant the seeds for key reforms that will lead to sustainable market development. However, financial sector authorities are proving to be a formidable force. They have understood that the reforms will provide a win-win situation by strengthening the financial system and enhance the ability of financial institutions to effectively carry out their mandates. The ADB will continue to provide full support towards ensuring a smooth transition in the development of the capital market reform process in Bangladesh. It looks forward to continue its partnership to deepen the reforms under CMDP-III in 2015 by broadening the investor base and expanding the market development measures introduced under CMDP-II.
