The Asian Development Bank (ADB) has, reportedly, agreed to make available the second tranche of its $300 million fund it had committed for development of the country's capital market. An ADB mission visited Bangladesh last month to review the progress made so far in the implementation of policy actions that the Bank considers very important for streamlining its capital market. The mission, according to an aid memoire forwarded to the government late last month, was satisfied with the actions taken so far and also over the government's commitment to implement the rest of the policy actions on time, for development of the market.
There should be, at least, a couple of reasons to be happy with the observations made by the ADB mission. Firstly, a multilateral donor like the ADB has expressed satisfaction over the progress in implementation of a few policy actions relating to the capital market development. Usually, such multilateral bodies seldom express satisfaction with the pace of progress in implementation of the conditions they attach to disbursement of their committed aid funds. Secondly, the policy actions, a few of which have already been implemented and some more awaiting implementation during the coming months, relate to the capital market that needs to go through a phase of hard reforms for its streamlining and revamping.
The government embarked on capital market development programme. This is in fact the second such move, taken up for operationalisation in November 2012 with assistance from the ADB. The programme with a two-pronged approach seeks to stabilise the market by putting in place firewalls and implementing a few key reform measures to make the securities regulator more independent, improving the governance structure of the bourses through their demutalisation, strengthening the bond market and streamlining exposure limits of banks and that of merchant banks to equity markets. The government has already implemented a number of major policy reforms including the establishment of capital market tribunal, amendment to the Bank Company Act to contain risks of banks in their exposure to stock market and demutualisation of the bourses.
Notwithstanding the criticisms that the immediate past government had to digest due to the collapse of the stock market in 2010, a number of actions initiated so far under the ADB-funded programme for capital market development have already started paying dividends. The market is now more stable than before and the investors are behaving rationally. The flow of foreign portfolio investment has also recorded a rise, despite the fact that its volume is still very low. But what is encouraging is that the foreign investors are showing growing interest in the Bangladesh market.
The capital market does have many more deficiencies that need to be addressed by way of fine-tuning the major stakeholders including the Bangladesh Securities and Exchange Commission (BSEC), the bourses and the listed companies. Besides, what remains to be equally important is the quality of the financial reports presented by the listed companies. The government has apparently shelved the proposed Financial Reporting Act, coming under pressure from the accounting professionals. But it will have to find an appropriate way to ensure the quality of financial statements of the listed companies for the greater benefit of the stock market and its own revenue earning.
