Growing outstanding debt may lower development finance

Sarwar Md. Saifullah Khaled | Published: October 17, 2017 12:20:16 | Updated: November 11, 2017 12:40:48

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An independent think tank Unnayan Onneshan (UO) depicted the country's economic scenario in its monthly publication, "Bangladesh Economic Update" September 2017. The UO has said that persistently increasing outstanding debt along with high debt-service payment every year is likely to lower the country's development finance. It may also escalate intergenerational debt burden in the future. The UO has sought adoption of a prudent debt management policy that harmonising with the macroeconomic policies will ensure growth-enhancing fiscal management in the economy. This would effectively deal with the ominous effects of debt and deficit.

In its eighth year of this monthly publication the research organisation UO noted that at the end of fiscal year 2016-2017, the total outstanding domestic debt increased by 13.25 per cent. The most recent data show that the total outstanding external debt burden increased by 10.10 per cent at the end of financial year 2015-2016. The growth rate in net foreign aid, on the other hand, decreased to 2.10 per cent in financial year 2016-2017 from 17.54 per cent in financial year 2015-2016. It is found that since financial year 2013-2014 the debt-gross domestic product (GDP) ratio is on the rise.

The recent data published by the Bangladesh Bank (BB) show that the outstanding domestic debt as percentage of GDP was 15.45 per cent in financial year 2013-2014, 15.50 per cent in financial year 2014-2015, 15.78 per cent in financial year 2015-2016 and 15.83 per cent in financial year 2016-2017. The government has, of late, been borrowing more from the non-banking sources than the banking system, primarily by selling national savings directorate (NSD) certificates at a significantly higher interest rate. The higher domestic borrowing by the government through NSD certificates reflects sluggish demand for investible funds in the private sector. The outstanding domestic debt stood at more than Tk 3.10 trillion at the end of June 2017 compared to more than Tk 2.73 trillion in the corresponding period of the previous fiscal year.

Analysing the increasing trend in outstanding domestic debt over the last eight years, it is found that the amount of outstanding domestic debt has become 2.65 times higher in financial year 2016-2017 than the outstanding domestic debt of Tk 1.17 trillion in financial year 2009-2010. Referring to the declining rate of growth in foreign aid disbursement, Unnayan Onneshan evinces that total foreign aid grew by only 2.36 per cent in financial year 2016-2017 compared to 11.21 per cent in financial year 2015-2016. The net foreign aid, with 3.15 per cent increase in principle repayment, grew by 2.10 per cent in financial year 2016-2017 compared to 17.54 percent in financial year 2015-2016.

Increasing allocation for non-development expenditure due to high debt-service payments every year does not allow the government to allocate adequately for Annual Development Programme (ADP). This results in creating barrier to the expansion of productive capacity in the economy. The government targets to borrow Tk 553.13 billion from external sources during financial year 2017-2018, despite increasing outstanding external debt. Whereas the target of government borrowing from external sources was Tk. 315.87 billion in the revised budget of fiscal year 2016-2017. The trend, as shown above, of government's growing outstanding domestic and increasing outstanding external debt, along with high debt-service payment every year, may lower the country's development finance.

The writer is a retired Professor of Economics, BCS General Education Cadre.

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