Dhaka, Bangladesh (BBN) – Bangladesh is set to form a sovereign wealth fund (SWF) with an authorised capital of $5.0 billion to finance mega projects particularly infrastructure ones.
The initial paid-up capital for the proposed fund will be fixed at $1.0 billion as per recommendation of the high-powered committee.
The government will have to provide $1.0 billion as equity of the proposed SWF from its budgetary allocation, a senior official familiar with the committee told BBN in Dhaka.
He also said the government may raise money through issuing treasury bonds from the market in local currency. “The money will later be converted into foreign currency for the SWF.”
The SWF will be run as a state-owned agency with memorandum of articles and others rules and regulations, the official explained.
After launching the fund, the authorities of SWF will be allowed to borrow money from the foreign exchange reserve of the Bangladesh Bank (BB) or overseas sources.
“The state cannot use the foreign currency reserves of the central bank directly. But after creation of the proposed fund the money in the reserve can be used,” he noted.
On December 14, Bangladesh’s foreign currency reserves stood at $31.75 billion, which is enough to meet eight months’ import payment obligations.
The public projects particularly infrastructure ones and the projects undertaken within the ambit of public-private partnerships (PPPs) are allowed to receive fund from the SWF, according to the committee’s recommendations.
Currently, Bangladesh is implementing nine projects under a Fast Track Project Monitoring Committee, headed by Prime Minister Sheikh Hasina for quick implementation.
A 13-member team led by Bangladesh Bank’s Deputy Governor SK Sur Chowdhury that was formed last year to evaluate the prospects of creating the fund submitted its report to Finance Minister AMA Muhith on Thursday.
“The sovereign wealth fund is a new concept for Bangladesh,” the finance minister told reporters in the capital Dhaka.
He also said that a law needs to be passed first before forming the fund.
A proposal for creating the fund will be sent to the cabinet next month. Once the approval comes, work on enacting the law will start.
“If the cabinet approves the proposal, I am hopeful that the act will be presented in the next parliament session. The government will complete the process in three to four months,” Mr. Muhith explained.
Many central banks in recent years have accumulated reserves in excess of needs for liquidity or exchange rate management, and most of them have diversified into assets other than highly short-term liquid assets.
As of September 2016, total assets under SWFs around the world stood at $7.4 trillion, up 0.76 percent from a year earlier, according to the Sovereign Wealth Fund Institute, a US-based company that analyses public asset owners such as SWFs and other long-term government investors.