Normative Analysis on Public Debt of Bangladesh
The ever rising public debt has been exercising a serious pressure on the micro-economic stability of the country which can’t be described in a word. To find out the disadvantages of public debt one need not to give a cat’s eye view on public debt of the country. Rather we can easily find out the disadvantages of public debt if we look to the present socio economic & political condition of our country. Public debt put an upward pressure on real interest rate crowding private investment out. High public debt reduces the power of Government investment for public welfare. More public debt results in lesser actual production than potential production & more inflation.
Firstly, we can say about interest rate. We know that government collects debt from two sources. One is internal source (Banks, Financial Institutions, Treasury bill and Treasury bond, defense certificate and so on) & other is external source (International organization such as World Bank, IMF, ADB, and IDB etc). As the money supply in market increase, it results in the increase of Cost of capital. So the payments of interests grew in a geometrical way. The interest rate that government has to pay to such institutions for debt is much higher. For example, interest rate on debt of external source was 2.03% in January 2006, 1.17% in January 2008 & 0.91% in 2010 (World Bank Report , 2012) but interest rate on internal sources such as nominal interest rate on debt from Banks and other financial institutions was around 12% in 2011, 14% in 2012 & 13.73% up to April in 2013 and interest rate of Treasury bill was 8.63% & 7.02% on Treasury bond in 2012 (bb.org.bd) which was much higher than the interest rate of external source.
Secondly, we can say about the excess burden of debt that directly imposed to our country people. When government rely much on public debt, debt sustainability becomes more difficult which result in unstable microeconomic condition & hamper economic growth. In 1980 domestic debt was TK
Firstly, we can say about interest rate. We know that government collects debt from two sources. One is internal source (Banks, Financial Institutions, Treasury bill and Treasury bond, defense certificate and so on) & other is external source (International organization such as World Bank, IMF, ADB, and IDB etc). As the money supply in market increase, it results in the increase of Cost of capital. So the payments of interests grew in a geometrical way. The interest rate that government has to pay to such institutions for debt is much higher. For example, interest rate on debt of external source was 2.03% in January 2006, 1.17% in January 2008 & 0.91% in 2010 (World Bank Report , 2012) but interest rate on internal sources such as nominal interest rate on debt from Banks and other financial institutions was around 12% in 2011, 14% in 2012 & 13.73% up to April in 2013 and interest rate of Treasury bill was 8.63% & 7.02% on Treasury bond in 2012 (bb.org.bd) which was much higher than the interest rate of external source.
Secondly, we can say about the excess burden of debt that directly imposed to our country people. When government rely much on public debt, debt sustainability becomes more difficult which result in unstable microeconomic condition & hamper economic growth. In 1980 domestic debt was TK
Bibliography: Authors’ calculation based on Bangladesh Bureau of Statistics (BBS), Bangladesh Economic Review 2011, Bangladesh Bank. Authors’ calculation based on Bangladesh Bureau of Statistics (BBS), Bangladesh Economic Review 2011, Bangladesh Bank. bb.org.bd. Economic Review, 2006 and 2007, Fiscal Report of MoF. (2012). World Bank Report . Prepared By Mohammad Noor Nabi (Joy) Department of Finance (4th Batch) Jagannath University.