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Debt and Deficit: Trends and Challenges

Bangladesh Economic Upadate, September 2015 

MEU September 2015The current issue of the Bangladesh Economic Update analysing the current trends in deficit and debt reveals that increasing per capita debt burden, high debt as percentage of gross domestic product (GDP) and large debt service payment lowering the capacity of government to increase development expenditure are poised to impede the economic growth and increase 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.

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Revenue Mobilisation: Recent Trends

Bangladesh Economic Upadate, August 2015 

MEU August 2015The current issue of the Bangladesh Economic update attempts to assess the state of revenue collection against the backdrop of the declining rate of growth in collection of total revenue in recent periods. The Update also examines the contribution of different sources to the total collection of revenue and analyses the pattern of expenditure, deficit, and cost of deficit financing. Revenue has fallen short of its target in previous two consecutive years where economic situation was comparatively good. So, considering the historical trend, it can be predicted that the shortfall will persist affecting the trajectory of growth of the economy. Some structural problems are also responsible for increasing pressure on revenue collection. Tax –GDP ratio is very low. The tax base in Bangladesh is undoubtedly narrow. The wide opportunities of evading and avoiding tax along with structural weakness in the system and sporadic political turbulence have added further difficulties to this situation. A huge amount of capital is illegally flown out from country every year which is a big blow for the economy as it means lost investments and revenue income for the government. Adequate revenue collection propels the growth of a country by providing adequate fund to meet the expenditure and decrease the dependency on aid. To achieve this goal government sets ambitious fiscal targets of revenue collection every year and has continuously been failing to achieve the target in recent years.

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Targets Hanging in the Balance

A Rapid Assessment of National Budget 2015-16 

MEU June 2015In view of the current economic structure of Bangladesh, allocation of resources must be channeled efficiently into the productive sectors in order for the economy to get higher returns in terms of expanded productive capacity and resultant increased gross domestic product (GDP). Despite commendable progress in achieving growth in GDP, it is considered that the country has been missing the opportunities to capitalise on its resources and potentials to embark upon rising as a middle-income country by 2021. The causes of missing opportunities are, however, more political than economic. The characteristic of the national budgets – long on targets, short in reality – is mainly due to the lack of political will in the country. In recent years, the low implementation status of the national budgets has further accentuated the lack of political will induced shortfall in achieving targeted rate of economic growth in the country. The current national budget is tabled against the backdrop of three major economic challenges – shortfall in the achievement of economic growth vis-à-vis the target, low implementation of development expenditure, and lack of business confidence induced declining private investment.

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Major Economic Challenges: A Pre-Budget Analysis

Bangladesh Economic Update, May 2015 

MEU May 2015The current issue of Bangladesh Economic Update identifies ten major economic challenges causing shortfall in growth in gross domestic product (GDP) vis-à-vis target, slack private investment, and shortfall in collection of revenue vis-à-vis target. The Update presents a thorough scrutiny of the challenges that the economy has undergone during FY 2014-15 and should take into consideration while declaring the budget for FY2015-16. The Update, however, also presents a critical analysis of the trends of selected economic indicators with respect to three overarching policy issues – expansion of productive capacity, effective provision of social services to the citizens, and sustainable development – that must be taken account of before setting off for the formulation of national budget 2015-16. Finally, the Update attempts to develop an institutional reform measure that specifying the functions and responsibilities of the administrative structure of current fiscal management would confirm the effectiveness of economic management in the country through enhanced capabilities and greater accountability of responsible authorities. The target of rate of growth in GDP has been being set over seven percent in recent years, whereas the actual has been sticking to around six percent. The slow rate of growth in GDP can however be ascribed to mainly three issues – stagnant private investment, shortfall in revenue collection and low implementation of ADP along with lack of infrastructural developments.

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Expenditure on Social Sector vis-à-vis Public Spending: An Assessment

Bangladesh Economic Update, March 2015 

MEU March 2015The current issue of Bangladesh Economic Update aims at assessing the trend of public spending in connection with the allocations for social development – improvement in education, health, social security and welfare, and housing. The Update finds that on the one hand public spending assumes an increasing trend in Bangladesh, but yet the country lags far behind other developing countries in accumulating the public spending up to the mark in order to expedite economic growth and accelerate the declining rate of poverty. On the other hand, allocations of public spending for social sectors as percentage of the total programme spending have recently undergone decreasing trends signaling inadequate investments in social development and posing challenges to the formation of human capital in the country. The Update puts particular emphasis on the necessity of an effective fiscal management system that would help the government increase public spending and thus channel adequate resources to such sectors as education, health, social security and welfare, and housing, thereby ensuring the provision of public services and facilitating the formation of human capital in Bangladesh.

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