Dhaka: The Unnayan Onneshan (UO) reveals that increases in per capita debt and debt service payment are likely to lower development finance and escalate intergenerational debt burden in the future.

The independent multidisciplinary think-tank in its monthly publication of 'Bangladesh Economic Update' September 2015 said that total outstanding domestic debt has increased by 13.7% while the total outstanding external debt burden increased to by 8.5% in FY 2013-14. Meanwhile, during the period from FY 2012-13 to FY 2013-14, the debt service payment increased by 18.6%.

The outstanding domestic debt as percentage of GDP was 15.2% in FY 2011-12, 15.11% in FY 2012-13, and 15.04% in FY 2013-14, finds the think tank.  

Government borrowed more from non-banking system than the banking system in FY 2014-15, although, as shown in previous years, deficits are usually financed by government borrowing from the banking system, observes the UO.  

The domestic debt stood at Tk. 222573 crore in FY 2014-15 (July-May) crore in FY 2013-14, which was Tk. 203163 crore, Tk. 181184 crore, Tk. 160423 crore and Tk. 139220 crore in FY 2013-14, FY 2012-13, FY 2011-12 and FY 2010-11 respectively. Debt has increased by Tk. 26788 crore during the period from FY 2013-14 (July-May) to FY 2013-14 (July-May).

The external debt has increased by USD 319 million in FY 2013-14 compared to FY 2012-13, whereas the debt increased by USD 547 million in FY 2012-13 compared to FY 2011-12. In FY 2014-15 (July-February), external debt stood at USD 1495 million. The total outstanding external debt, however, stood at USD 27036 million in 2013-14, whereas it was USD 23608.8 million, USD 23537.1 million and USD 24907 million in FY 2010-11, FY 2011-12 and FY 2012-13 respectively.

The per capita external debt was USD 115.52 in FY 2001-02, which stood at USD 136.45 in FY 2006- 07, USD 157.7 in FY 2010-11 and USD 173.53 in FY 2013-14, finds the research organization.

The per capita domestic debt was Tk. 3433.36 in FY 2001-02, which reached Tk. 5533 in FY 2006-07, Tk. 9292.95 in FY 2010-11, Tk. 12968 in FY 2013-14 and Tk. 13989.49 in FY 2014-15 (July-May). Taking the growth path of increase in per capita domestic debt into account the UO projects that the per capita domestic debt is likely to rise to Tk. 16000 in FY 2015-16.  

The think tank further observes that the foreign debt-service payment is increasing over the periods, which indicates a decrease in the net foreign asset of the country. In 2013-14, the total service payment was USD 1294 million among which USD 1088 million was paid as principle and USD 206 million was paid as interest. The payment, however, reached USD 794 million where principle payment was USD 659 million and USD 134 million until February 2015.  

Increasing allocation for non-development expenditure due to financing the deficit does not allow the government to allocate adequately for development expenditure resulting in barrier to the expansion of productive capacity in the economy, says the Unnayan Onneshan. 

The research organisation shows that while the rate of growth in non-development expenditure has stood at 19.66 percent in the budget of FY 2015-16 compared to the budget of 2014-15, the rate of growth in development expenditure stood at 18.78 percent in the budget of FY 2015-16 compared to FY 2014-15.

The think-tank evinces that the deficit amounting to five percent of GDP stands at Tk. 86657 crore without grants in the budget of FY 2015-16, whereas the deficit was Tk. 67552 crore in the budget for FY 2014-15 which was later revised at Tk. 76297 crore.  

As a result, the target of government borrowing in the budget of FY 2015-16 increases and amounts to Tk. 80857 crore, which was Tk. 61346 crore in the budget of FY 2014-15 causing a 31.8 percent increase in target of government borrowing, finds the think tank.

Increasing government borrowing from domestic sources may, however, crowd out the private investment by causing the interest rate to rise. In July-May period of FY 2014-15, total domestic debt has increased by 32.93 percent from the corresponding period of the FY 2013-14.

Financing of budget deficit in July-May period of FY 2014-15 stood higher at Tk. 33883.09 crore compared to Tk. 27379.43 crore during the corresponding period of FY 2013-14, representing an increase of 23.8%.

In order to check the ominous effects of debt and deficit, the Unnayan Onneshan urges for the adoption of an immediate debt management policy through a harmonisation of the macroeconomic policies that ensures an effective fiscal management in the economy.