The current issue of the Bangladesh Economic Update analysing the current trends in deficit and debt reveals that increases in per capita debt, share of GDP and debt service payment have been lowering public spending on physical and socio-economic infrastructure and escalating intergenerational debt burden in the future. Deficit as percentage of GDP is increasing which is not that alarming level but swelling every year can be menacing for the economic growth. The expenditure – both the development and non-development expenditure – is increasing but collection of revenue is not at desirable level to cover the expenditure. In order to meet up this gap, debt from domestic and external sources is mandatory. Debt is, however, common for both the developed and developing economies but success of a country depends on prudent use and efficient management of debt. In this regard, financing and managing the deficit in a best possible way becomes a challenge for the government.
Debt may be considered as a fiscal stimulus which has a multiplier effect on economy if it is used for productive purpose otherwise the debt make the problem worse (Leech, 2012). The per capita debt burden of Bangladesh has been mounting rapidly since FY 2009-10, and debt as a share of GDP is high. A large amount of money is paid every year as a principle and interest to service the domestic and foreign debt which is decreasing the net asset of the country.
But the sustainability of debt is questionable because a huge portion of the debt is spent to finance the non development expenditure like the interest payment, salary, food cost, structural adjustment cost etc; narrowing the capacity of the government to spend on social and infrastructural development.
The development expenditure is much lower than the non development expenditure which may increase the cost of debt by creating inflationary pressure, crowding out the private investment and may turn to a burden for future generation.
This issue highlights the current trend of deficit which emerges from the shortfall of revenue collection and expenditure, how this deficit is financed through the debt from domestic and external sources and the growth path of per capita debt burden. This issue also studies the cost of debt and suggests some policy prescription for more prudent use of debt and self sustaining growth.