Refugee Bonds’ Bangladesh Rohingya Crisis Bound
With almost half of Myanmar’s one million Muslim Rohingya population already pouring into next-door Bangladesh by land and sea to flee military and Buddhist civilian attacks, host government prime minister Sheikh Hasina and her ruling Awami League party have appealed to the international community for help in defraying the annual costs of the mass influx, estimated by a local economist at $800 million-$1 billion. The Rohingya have long fled their homes in Rakhine state, where they are denied citizenship, for South Asia including India and Pakistan as well as Indonesia, Malaysia and Thailand, and the refugees have both integrated into urban and rural cities and been isolated in separate camps and centers. Domestic budgets have largely absorbed the costs, and wealthier East Asia’s fiscal positions have left them in better shape to receive “boat people” waves not experienced since Indochina’s post war aftermath four decades ago, when global relief and resettlement agencies took joint publically-funded action. In the current crisis regional officials have no such mechanism for quick collective response but they could call on financial markets which have since developed, and conventional and Islamic-style sukuk bonds in particular promoted under the Asian Development Bank’s aegis, to promptly raise the billions of dollars needed in Bangladesh and elsewhere as specialized refugee instruments.
Bangladesh’s capital markets are “underdeveloped,” according to the IMF’s June Article IV report, and its external sovereign bond and stock market skidded with the displaced person arrival, from a 5% MSCI frontier index gain through August. No facilities or supplies were in place to accommodate hundreds of thousands of Rohingya amid the already poor physical and social infrastructure even though the country has graduated to lower middle-income status with per capita income at over $1500 now surpassing Pakistan’s, as touted in an Economist magazine article. Despite recent monsoon rains which again claimed hundreds of lives and vast crop land, GDP growth is projected again this fiscal year at 7% as textile exports and Gulf remittances regain double digit increases. In July and August they each were up 15% to almost $7 billion and $13 billion respectively, although garment prices dropped overall and the remittance number was skewed by the Eid holiday celebration. Private investment remains weak at under 25% of GDP, and a bill has been submitted to parliament to create a “one stop shop” to lift Bangladesh from the bottom of World Bank Doing Business ranking.
Inflation approaches the economic growth pace with higher food prices, but the central bank has kept the benchmark interest rate on hold. The budget deficit forecast is 5%, but a new value added tax has been introduced and public debt is stable at 40% of GDP. The current account is roughly in balance and international reserves over $30 billion cover nine months of imports, but a proposed sovereign wealth fund would initially take $2 billion from the pool. The exchange rate has softened slightly in nominal terms to above 80/dollar with selective official intervention, and the IMF urged more flexibility as a priority Article IV recommendation.
Banking sector problems, with a 25% bad loan ratio at state-owned units with one-quarter of system assets, are a major chokehold on broader financial market development. Capital adequacy is low at 6%, and it is still tied up in stock market investment after a crash five years ago prompted regulators to order reduced exposure. Government influence harms bank performance, and the Capital Market Master Plan adopted in the wake of the 2011 crash has a large unfinished agenda, including on mutual and pension fund and corporate bond launch, the IMF survey admonished.
Bangladesh may be limited in designing and supporting refugee bond issuance on its own, but could turn to the Asian Development Bank for credit enhancement and technical assistance and also team with neighbors like Malaysia in particular. It hosts a sizable Rohingya contingent and is the biggest sukuk center, accounting for over half the $60 billion total worldwide through the first half, and Prime Minister Najib Rezak raised the issue as a financial and security challenge during his White House visit last week. The Middle East with its Syrian displaced population has shown interest in such capital market innovation, but Asia with its decades of experience with bond promotion and greater depth could commission immediate pilot projects corresponding to Rohingya crisis urgency.
