Normative Analysis on Public Debt of Bangladesh

Only available on StudyMode
  • Download(s) : 73
  • Published : May 26, 2013
Open Document
Text Preview
The ever rising public debt has been exercising a serious pressure on the micro-economic stability of the country which can’t be described in a word. To find out the disadvantages of public debt one need not to give a cat’s eye view on public debt of the country. Rather we can easily find out the disadvantages of public debt if we look to the present socio economic & political condition of our country. Public debt put an upward pressure on real interest rate crowding private investment out. High public debt reduces the power of Government investment for public welfare. More public debt results in lesser actual production than potential production & more inflation.

Firstly, we can say about interest rate. We know that government collects debt from two sources. One is internal source (Banks, Financial Institutions, Treasury bill and Treasury bond, defense certificate and so on) & other is external source (International organization such as World Bank, IMF, ADB, and IDB etc). As the money supply in market increase, it results in the increase of Cost of capital. So the payments of interests grew in a geometrical way. The interest rate that government has to pay to such institutions for debt is much higher. For example, interest rate on debt of external source was 2.03% in January 2006, 1.17% in January 2008 & 0.91% in 2010 (World Bank Report , 2012) but interest rate on internal sources such as nominal interest rate on debt from Banks and other financial institutions was around 12% in 2011, 14% in 2012 & 13.73% up to April in 2013 and interest rate of Treasury bill was 8.63% & 7.02% on Treasury bond in 2012 (bb.org.bd) which was much higher than the interest rate of external source.

Secondly, we can say about the excess burden of debt that directly imposed to our country people. When government rely much on public debt, debt sustainability becomes more difficult which result in unstable microeconomic condition & hamper economic growth. In 1980 domestic debt was TK 1.79 billion but in 2007 it was Tk 80.63 billion and in the FY 2011-2012 it raised to $1974.97 million. In 1980 foreign debt was TK 2.21 billion in 2007 it was Tk 13.40 billion and in FY 2011-2012 it reached at Th 21.34 billion (Economic Review, 2006 and 2007, Fiscal Report of MoF) (Authors’ calculation based on Bangladesh Bureau of Statistics (BBS), Bangladesh Economic Review 2011, Bangladesh Bank). Per head debt burden was $163.87 in the FY 2011-2012 and it is expected that the burden will be $171.83 in the FY 2014-2015 (Authors’ calculation based on Bangladesh Bureau of Statistics (BBS), Bangladesh Economic Review 2011, Bangladesh Bank). So from the data we can say that over time debt burden to public is increasing and this burden can cause your children and/or grandchildren to be poor, even if they are good students and hard workers throughout their lives. But we don’t have the right to make our next generation worsen.

Thirdly, we can say about the payment of interest and repayment of principle. For making payment of interest and repayment of principle every year government has to reserve a large portion in our FY budget, for which government has to cut budget from the social safety net and construction & development sector. As a result government can’t provide enough funds to social safety net and construction sector which hamper our flow of development.

Fourthly, to get loan from different international organizations our government has to fulfill a lot of conditions for example we can say here in 2010 to get loan from IMF government has to fulfill certain conditions including reduction of subsidy on different daily necessary products and has to cut in the budget of social safety net & social welfare programs and has to increase the price of electricity and other products for several times. As a result our daily life is becoming more expensive, poor people are becoming poorer and there living standard in decreasing day by day. When deficit is...
tracking img