Bangladesh government’s budget and its debts

According to the experts, the huge interest burden will be a huge amount of burden for the government and might also take away the scope to spend on any productive projects like the infrastructure development and energy projects. Just for the coming financial year, the govt. paid 12.3 percent of the outgoing year’s budgetary for interest payment which is estimated to be 12.2 percent of the budget of 1.9 trillion Tk.

Only the public service sectors, is said might be able to absorb a greater sum than that of interest payments in the coming financial year. The amount of interest payment might even exceed the total cumulative allocations for fuel and energy, social security and welfare sectors. A warning has been given by the economists about the mounting pressure of interest payments on public expenditure. According to them this reduces the government's opportunity to provide for the other sectors and ability to respond to sudden shocks such as natural disasters or a global economic turmoil.

Economist and former adviser to a caretaker government stated that the rising pressure of interest payment might create a “vicious circle” and distress economic growth. He also said ‘It cuts the government's ability to invest in productive sectors.”. He carefully noted that if a country’s big percentile of incremental revenue is spent in paying off debts; then the opportunity and capability of that country reduces for investment in any other sector.

He said that the policymakers of our country should be more careful to keep the country out of this brutal circle. He used the example of Latin American countries and the problems they faced in the 80’s because of the relative problem of debts and their high interests.

In the budget analysis of Centre for Policy Dialogue, it was found that more than 43 percentile of this year’s total incremental revenue will be spent on interest payments. According a CPD distinguished fellow, this whole situation is raised because of Government’s bank based loans. The estimated raise of interest rate has increased about 17.7 percent from Tk 19,796 crore to Tk 23,302 Crore in just one year. And the domestic interest is estimated to be Tk 21,604 crore in the coming financial year.

Senior economist Dr. Zahid Hussain said that “Increased pressure of interest payments reduces the government's ability to respond to unexpected shocks”. He also showed his agreement with Bhattacharya when he said that increased borrowing from the domestic market is mainly responsible for the magnified interest payments.

He also said that the average useful interest rates for domestic loans are much higher than the average effective interest rate on concessional external loans taken from development partners.

The economist also noted that the government can alleviate this burden of interest payments by removing restricted access in getting foreign funds from development partners; also that multiparty lending agencies and donors have already committed more than $12 billion to Bangladesh. He said that Bangladesh should use the opportunity given at hand. Dr. Hussain said interest payment as percentage of Bangladesh's is yet to reach an alarming rate and in GDP of the country is still low compared to many other countries.  The govt. must be aware of this and should be prepared for anything; the govt. must be able to provide for in measure for disasters without affecting other sectors specially health, education and sectors that are important, said the economist.

Link to the main article:  Govt down in debt - Bulk from the budget to be spent on interest payment