Should Bangladesh Borrow From Wall Street Before It Borrows From Itself?

Bangladesh is preparing to join a queue on Wall Street. At home, a queue of lenders is already waiting for the government, and it is not being served.

In June, a 273-day government sukuk drew bids of BDT 566 bn against BDT 55 bn on offer. That is more than ten times the amount the government wanted to raise. Four months later, the same government is preparing to pay about 8% a year for dollars from international investors.

Both facts can be true at once, and together they say more about Bangladesh's debt strategy than either says alone.

What the bond is and what it will cost

Ershad Hossain, managing director of Putnam Capital Advisory, sets out the plan in The Business Standard. Bangladesh intends to issue its first international sovereign bond, of up to US 1bn, by December, with JP Morgan approved in principle as lead manager. The finance minister announced on 4 October that the government had ended its IMF programme and would rely more on bond and stock markets.

Hossain expects a five-year bond to cost about 8% a year. He compares that with about 2.13% on the World Bank's cheapest IDA loans and an estimated 4.5–5% on its IBRD loans. On US $1bn, the bond would cost roughly US$60m a year more than the cheapest World Bank money.

His case is careful, and he does not argue against the bond. A bond sets a price reference, brings in new lenders and prepares Bangladesh for the loss of cheap concessional loans after it graduates from least-developed-country status. He recommends starting small, at US$500–750m, and publishing a reform and debt plan first.

What the 8% pays for

The 8% has two parts, and only one of them is in Bangladesh's hands.

About 5 percentage points is the yield on five-year US Treasuries. Every borrower in dollars starts there, and Dhaka cannot change it. The other 3 points are the risk premium, which is the price investors charge for doubt.

Here is the arithmetic on US$1bn, using Hossain's figures as an illustration:

1. The Treasury part, at 5%, costs about US$50m a year.
2. The risk premium, at 3%, costs about US$30m a year.
3. Together they come to about US$80m a year, against about US$21m on an IDA loan of the same size.

The risk premium reflects what investors see. Hossain lists no bond track record, a B+/B2 rating below investment grade, weak banks with large bad loans, and the loss of the IMF's seal of approval. Bad loans across the banking system reached Taka 6.07 trillion in June 2026, according to Bangladesh Bank data reported by The Daily Star.

That premium is the only part of the bill the government controls. It falls when the doubts behind it are resolved, and not otherwise.

A sukuk would not make the money cheaper

Those of us who advocate sukuk should say this plainly. A sukuk is an Islamic investment certificate that gives holders a share in an asset or its income, instead of a loan that earns interest. It changes the contract. It does not change the borrower.

An international sukuk from Bangladesh would be priced off the same B+ credit as the bond. Investors would ask the same questions about reserves, banks and repayment capacity. The structure gives no protection against a weak credit either. This year two state-linked Indonesian issuers, Wijaya Karya and Pos Indonesia, were downgraded to default ratings after missing payments on their sukuk, according to Pefindo and Fitch.

The more useful question is what each kind of money is for.

The currency problem in a dollar bond

A dollar bond is repaid in dollars. Bangladesh earns those dollars from exports and remittances, while the budget the bond supports is spent in taka. When the taka falls, the cost of each dollar repayment rises in taka terms.

The pressure is already visible in smaller transactions. Writing in Islamic Finance news in September, Muhammad Fuad Hussain, a director of Akij Takaful Life, said that taka depreciation and central bank limits on outward remittance had delayed premium payments to overseas re-Takāful providers since 2022. A US$1bn repayment due on a single date meets the same constraint at a far larger scale.

Hossain makes a related point about timing. Development loans are repaid slowly over decades, while a bond falls due in full on one date. Bangladesh's foreign debt repayments are already at a record and are expected to keep rising until about 2029.

The bond therefore answers a real need, but only a dollar need. The realistic alternative is to match each need with the right source of money.

The idle money inside Islamic banks

For the taka budget, the lenders are already queuing. Islamic banks hold about a quarter of Bangladesh's bank deposits and ended 2025 with Tk193.92bn of excess liquidity, according to a July commentary on Bangladesh Bank's draft guideline for an Islamic interbank money market.

That money sits idle for a structural reason. A conventional bank can park surplus cash in treasury bills, and in a squeeze it can borrow from the central bank against government securities through a repurchase agreement, or repo. Islamic banks cannot use either, because both pay interest.

The tools they do have are thin. The government has issued sovereign sukuk since December 2020 and has raised more than BDT530bn through them, according to Dr Md Touhidul Alam Khan, writing in Islamic Finance news in July. He reads the tenfold oversubscription of the 273-day sukuk as proof that the current stock of Islamic instruments is too small for the demand.

What regular sovereign sukuk do for the system

Regular sukuk across tenors would put that idle money to work, and they would fund the budget in taka with no exchange risk.

Emre Balibek's 2017 World Bank discussion paper on sovereign sukuk describes what this did in Turkey. There the Islamic banking segment was about 5% of the banking sector, and regular domestic sukuk gave it non-interest investments it could also use as collateral at the central bank. In Bangladesh, the same segment is about a quarter of the system.

The 273-day sukuk already works this way. It counts towards banks' statutory liquidity requirement and can be pledged at Bangladesh Bank's Islamic Banks Liquidity Facility. A regular calendar of such issues would give monetary policy a working channel into a quarter of the banking system.

Balibek also lists pricing benchmarks and the encouragement of private issuance among the reasons sovereigns issue sukuk. That speaks directly to Hossain's strongest argument for the dollar bond, which is that it sets a price reference. A deep domestic sukuk curve would give Bangladeshi companies the same reference in their own currency.

Takaful funds need that asset too. Bangladesh Bank's August 2026 circular places Takaful inside the largest sukuk allocation tranche, alongside Islamic banks and financial companies. In a cross-country survey of Takaful operators during COVID-19, operators said deposits and government paper kept their portfolios steady, and one lesson they drew was to push for more sukuk issuance.

Does Bangladesh have enough assets for sukuk?

Scaling up raises a practical question that the bond does not. A sukuk needs an eligible asset or project behind it, and interest-earning cash cannot carry one.

Balibek is direct about the limit. He writes that "limitations of assets that comply with the requirements and are usable impose restrictions on the amount of sukuk that can [be] issued", and that debt managers "should carefully consider the availability of assets in planning the issuances".

Pakistan shows what happens when a programme grows. With about PKR8tn of sovereign sukuk outstanding by June 2026, it issued its first hybrid sovereign sukuk in April, combining Ijarah assets with commodity Murabahah receivables. Two Meezan Bank officers, writing in Islamic Finance news, say the design was adopted because the pool of eligible Ijarah assets is limited.

Bangladesh's issues so far rest on named projects. A paper in the INCEIF Journal of Islamic Finance and Sustainable Development finds that all but one are linked to environmental sustainability. I have not seen a public list of the state assets that could carry future issues, and such a list should come before any issuance target.

New assets are also being proposed. The Investment Corporation of Bangladesh has suggested a sukuk backed by future toll revenue from the Jamuna Bridge, which has brought in BDT6.5–7bn a year over the past five years, according to The Financial Express. The proposal would still need a sovereign guarantee, but each payment would have a named source.

Dollars for named purposes

For the dollar need, the strongest discipline is to tie the money to its purpose.

The 5.4% fuel and gas facility in Hossain's piece comes from the International Islamic Trade Finance Corporation. It pays for named imports, although six-month terms mean it must be rolled over. The Islamic Development Bank signed a US$1bn financing for the Eastern Refinery in Chattogram in September. Bond proceeds, by contrast, join the general pool and can pay for anything.

If the debut goes ahead, a sukuk tranche can still help, for a different reason than price. Balibek names a wider investor base as one main objective, reaching buyers who will not hold conventional securities. Kenya is taking that route. It plans a US$500m debut sovereign sukuk inside a programme that also includes panda, samurai and Eurobond issues.

If the money leaks, no instrument works

Every option in this piece fails in the same way if the money leaks.

Bangladesh's bad-loan ratio has reached 30%. can be attributed to wilful default, irregularities and corruption.

A Shariah label did not prevent it. The Daily Star reports that after the S Alam Group took over Islami Bank Bangladesh in 2017, the bank extended around 80% of its loans to the group's own companies and associated firms. Five weak Islamic banks have since been merged into Sammilito Islami Bank, with the government putting in BDT200bn of its capital.

Sukuk are not immune to weak borrowers either. Bangladesh's first private corporate sukuk, issued by Beximco to fund solar plants and its textile business, is seeking to extend its maturity from 2026 to 2032 after the company said it cannot repay.

The lesson is the same for a bond, a sukuk or a development loan. The instrument decides the contract, but the governance decides whether the money builds anything. Sukuk proceeds linked to named projects should come with audited, published reports on how the money was spent and what it built. The INCEIF paper makes a similar point: as reported, it holds that sustainability-labelled instruments without verified outcomes amount to green labelling rather than green finance.

That work belongs with the harder agenda Hossain names: tax collection, bank clean-up and better data. It is also what brings the 3 points down.

Common questions

What is a sovereign sukuk? A sovereign sukuk is an Islamic investment certificate issued by a government. Holders share in an asset, or the income from it, rather than receiving interest on a loan. Bangladesh has issued sovereign sukuk in taka since December 2020.

Would a sukuk be cheaper than a bond for Bangladesh? Not by itself. International investors price a sukuk off the issuer's credit, so a Bangladeshi sukuk would carry much the same risk premium as the bond. Its advantage is a wider pool of buyers.

Why can Islamic banks not buy treasury bills? Treasury bills and repo transactions pay interest, which Islamic banks may not earn. Without enough sukuk, they have few safe places to put surplus cash, which is why Tk193.92bn sat idle at the end of 2025.

Does every sukuk need a physical asset? Every sukuk needs an eligible asset or project behind it, and interest-earning cash cannot serve. How tightly the asset must back the certificate is a separate debate, which this piece leaves aside. The practical point is that the supply of usable assets limits how much a government can issue.

Back to the two queues

Bangladesh now has two queues in front of it. One is on Wall Street, where it will pay a stranger's price until it builds a track record. The other is at home, where Islamic banks, Takaful funds and individual savers are already waiting with taka they cannot place.

The dollar bond may still be worth issuing. But if the domestic queue is served first, with regular sukuk, a clear list of assets and honest reporting on how the money is used, will Bangladesh arrive on Wall Street paying less for its doubt?

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

Fuel more mind-shifting insights: Buy me a coffee and watch the wisdom percolate! ☕💡

If you found this blog post insightful, don’t forget to subscribe to our website for more updates. Your subscription will help us continue to bring you the latest insights. And if you think this post could benefit others, please feel free to share it. Let’s spread the knowledge together!