Home
+
Published : 12 Jun 2026, 01:19 AM
The government has proposed developing a municipal bond framework to finance local government and urban infrastructure projects, opening up a potential new source of long-term funding outside the banking sector.
Experts have broadly welcomed the idea but say significant institutional and financial challenges must be addressed before it can be rolled out on a large scale.
Presenting the FY2026-27 budget in parliament on Thursday, Finance Minister Amir Khosru Mahmud Chowdhury outlined a series of measures aimed at building a sustainable financial system.
To create alternative sources of long-term financing, the government will expand the corporate bond market and formulate a framework for issuing municipal bonds to support local government and urban infrastructure development, he said.
Municipal bonds are debt securities issued by local governments or city corporations to raise capital from institutional and retail investors for public projects such as waste management plants, roads, bridges and water supply systems.
Many view the initiative as a potentially effective way to reduce dependence on bank financing and channel long-term investment through the capital market.
Stakeholders say rapidly urbanising developing countries require substantial long-term capital to upgrade infrastructure in growing cities.
In Bangladesh, local government bodies, particularly city corporations, have traditionally relied on government allocations, budgetary support and bank loans to fund development projects.
Against that backdrop, the proposal signals a move away from conventional financing models.
Experts, however, caution that while the concept is appealing in principle, implementation will be far from straightforward.
They suggest launching pilot projects in relatively capable city corporations or municipalities before pursuing a broader rollout.
Muhammad Shahadat Hossain Siddiquee, an economic professor at Dhaka University and a development researcher, told bdnews24.com that municipal bonds could provide an additional financing tool for local governments beyond their own revenues and budgets.
"How effective municipal bonds will be depends largely on their structure and design," he said.
"A key question is whether the liability will rest with the government or with the municipality or city corporation concerned. Without knowing the features of the bond, it is difficult to assess its advantages and risks."
If the government issues the bonds and uses the proceeds for municipal infrastructure, investors are likely to view them as relatively safe assets, he said.
Government-backed instruments are generally regarded as low-risk investments, meaning the initiative could create an alternative financing channel for public projects.
Siddiquee also stressed the need to deepen Bangladesh's bond market.
"If government deficits are financed excessively through the banking sector, private investment may suffer. Lower investment eventually affects employment. That is why alternative financing mechanisms are needed."
He said municipal bonds could become part of that broader effort.
"The government is looking to strengthen the bond market. Like treasury bonds, these instruments could create new opportunities for individuals and institutions to invest in development."
If bonds are issued specifically for city corporations, there should be a clear target for the amount to be raised, he said.
"In that case, projects financed through bond proceeds would not need to rely directly on the national budget. The Annual Development Programme should also clearly identify which projects will be funded through bonds."
At the same time, Siddiquee warned that if city corporations receive large amounts of funding without sufficient accountability, they may pay less attention to raising their own revenues.
"Bond proceeds will ultimately have to be repaid. The question is who bears that responsibility. If bonds are issued for city corporations, part of their revenue should be earmarked for repayment. Otherwise, the burden could eventually fall on the government."
Even so, he described the concept as a promising one.
"If city corporations are to become effective, capable and development-oriented institutions, strengthening their own revenue base while creating access to bond financing is a sensible idea under current economic conditions."
Implementation Challenges
Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM) and a professor of economics at Dhaka University, also sees considerable hurdles ahead.
"Municipal bonds are attractive in principle, but Bangladesh is not yet fully prepared for them," he told bdnews24.com.
"Local government institutions have limited revenue bases. Their ability to collect taxes and fees remains weak, financial reporting standards are often inadequate and project cash-flow forecasts are not always reliable."
To attract investors, authorities will need to clearly demonstrate how interest and principal payments will be generated, he said.
"Government announcements alone will not build confidence."
According to Raihan, successful municipal bond issuance would require credit ratings, audited financial statements, transparent project selection, dedicated revenue streams and, where necessary, partial government guarantees or other forms of credit enhancement.
He also questioned whether retail and institutional investors would be willing to buy municipal bonds on a large scale at this stage.
"The banking sector remains fragile, confidence in the capital market is weak and investors are not yet fully convinced about the financial discipline of local governments."
Rather than launching municipal bonds nationwide immediately, Raihan suggested beginning with pilot projects in a handful of stronger city corporations or municipalities.
Projects linked to water supply, waste management, bus terminals, markets, parking facilities and other revenue-generating urban services could be suitable starting points, he said.
Urban planner Adil Mohammed Khan described the budget proposal as a policy announcement rather than a funding commitment.
"Public confidence will be crucial," he told bdnews24.com.
"Simply introducing municipal bonds will not deliver the desired results unless the underlying financial challenges are addressed. There are many obstacles. The key issue now is how the government designs the framework."
Mohammad Mamun-ul-Hasan, acting chief executive officer of the Dhaka North City Corporation, meanwhile, said the initiative would depend on government policy decisions.
"If implemented, it will apply to local government institutions across the country, and we will follow the framework accordingly," he said.
