Bangladesh can afford higher borrowing to support Covid-affected economy, says BB policy note

Bangladesh has the ability to enhance the credit-based spending to support Covid-affected sectors as the country is ‘at low risk in terms of vulnerable debt sustainability.’

A policy note, prepared by Bangladesh Bank, made the observation mentioning that the country has managed public debt to Gross Domestic Product (GDP) ratio in a conservative way.

“The country now can afford more borrowing to address the economic fallout from Covid-19 pandemic,” it argued adding that Bangladesh has experienced low debt to GDP ratio of around 34 per cent since last few years.

“Therefore, Bangladesh can increase their expenditure, if needed, at significant level through domestic borrowing and foreign loans to support affected sectors of the economy,” the policy note argued.

Titled as ‘COVID-19 Crisis and Fiscal Space for Bangladesh Economy: A Comparative Analysis with South Asian Countries,’ the policy note was released by a team of Chief Economist’s Unit of the central bank. The team members are: Dr Md Ezazul Islam (General Manager), Dr Md Salim Al Mamun (Deputy General Manager) and Raju Ahmed (Deputy Director).

[The virtual edition of the policy note is available: https://www.bb.org.bd/pub/research/policynote/pn2002.pdf.]

The policy note also recommended that the government may improve tax compliance with proper implementation of tax reform policies for improving tax-GDP ratio in the near and medium term.

It also pointed out that Bangladesh maintained around 10 per cent of tax to GDP ratio, which is lower than all other south Asian countries, except India.

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