The government has set up a seven-member committee to find ways to float sovereign bonds in the international market to ease pressures on the balance of payments, the country's accounting record.

The committee formed last week and headed by Syed Manjurul Islam, additional secretary of the Finance Division, will submit a report within one month.

Members of the committee include representatives from Bangladesh Bank, National Savings Directorate, Policy Research Institute (PRI) the finance ministry and managing directors of Sonali and Trust banks.

The government plans to float sovereign bonds to the tune of $500 million in the international market. Two foreign banks have already submitted proposals to the finance ministry.

The committee's other responsibilities include studying the availability of credit in international markets and recommending interest rates.

The committee has also been told to redesign premium bonds for expatriate Bangladeshis and recommend whether the interest rates against the savings certificates should be adjusted upward or not.

Bonds issued by national governments in foreign currencies are normally referred to as sovereign bonds or debt instruments.

In December last year, BB gave a set of recommendations to the government in favour of floating sovereign bonds, after the central bank's board of directors predicted that the BoP could become a major headache in the coming days.

The central bank also wrote that the government can take longterm credit at low costs by issuing the bonds.

It also mentioned some negative aspects of the bonds. It said at the time of repayment of loans in foreign currency, the country may face pressures due to a devaluation of the local currency.

Finance Minister AMA Muhith also said yesterday that the government is planning to float sovereign bonds.

"It is high time to float such funds," he told businessmen during a discussion at the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) in Dhaka.

He said international rating agencies — Moody's and Standard & Poor's — have assigned good ratings for Bangladesh. "We want to avail this opportunity. If we float bonds now, we will receive positive responses."

BB Governor Atiur Rahman said the government is thinking about it and has done some groundwork.

"We are encouraging the government to capitalise on strong economic growth," he told Bloomberg News in Mumbai yesterday.

Independent observers supported the government move.

"Sovereign bonds will mobilise a huge amount of foreign funds, if Bangladesh gets good responses from the markets," said Sadiq Ahmed, vice-chairman of PRI.

"It is directly linked to economic growth. Bangladesh needs foreign funds to keep up growth momentum. Sovereign bonds are a great plan to raise foreign funds," he said.

Asian nations and companies have raised $11.73 billion this year even as Europe struggles with a sovereign debt crisis.

Bangladesh is launching sovereign bonds for the first time in the international market.

A finance ministry official said they are planning to raise $500 million through bonds primarily to keep any potential risk under control. If the bond is undersubscribed for any reason, the country will not be able to float the same bond in the next two to three years, he said.

Sri Lanka has recently taken foreign loans for 10 years at an interest rate of 6.25 percent by issuing sovereign bonds, said a central bank official.

At present, the bond is being issued in the international market at an interest rate of 5 percent to 5.5 percent.

Bangladesh's BoP is now under pressure due to the import of a huge volume of petroleum to feed its power plants and a sharp decline in net foreign aid.

International Monetary Fund predicts the deficit in the current account balance could be $1.4 billion dollar in the current fiscal year.

BB also projected the same scenario but put the figure at $250 million.

In its monetary statement released on Thursday, the central bank said as a result of multiple pressures in the external sector, the exchange rate has depreciated, with the taka's value falling by around 15 percent vis-a-vis in the 12 months preceding mid-January 2012 and foreign exchange reserves have also fallen from $10.1 billion to $9.2 billion during the period.