High Value Public Debt Causes Imbalance in Economy: CPD

Though Bangladesh remains in a suitable position on public debt, it may be pushed to yellow rate after FY25 as spending of high value foreign debt increases at the nonproductive sector, a CPD study says.

Both public and private sector debt from external sources have increased in the recent past, which would create stress on forex reserves and widen the imbalance of trade, according to the study.

The Centre for Policy Dialogue (CPD), a think tank, presented the study in a programme titled ‘Deconstructing Public Debt of Bangladesh: Trends, Status and Outlook’ organised virtually on Monday.

Presenting the overall scenario of Bangladesh’s debt, CPD Distinguished Fellow Dr Debapriya Bhattacharya said the total national debt is increasing at a faster rate than gross domestic product (GDP).

He said the macroeconomy of the country will face pressure if the government does not take cautionary measures from now to spend debt money in the nonproductive sector.

If the current tendency of national debt continues, the economy will witness weakening of external balance, deteriorating current account and balance of payment, fall in external financial flows including export revenue, remittance income, FDI, income on assets overseas, he said.

As a result, the situation may arise as debt default, fall in economic growth, high inflation, foreign exchange reserve depletion, exchange rate depreciation, loss of economic competitiveness and lowering of credit rating, Dr Debapriya observed.

Replying to a query he said, if the GDP ratio of Bangladesh is not matching with other indicators of economy and different economic indicators are interrelated, while one of it is rising, the changes also affect other indicators.

He urged the government to continue the quarterly budget review and debt situation review so that parliamentary standing committee members can discuss the matter for national interest.

Debapriya also urged the government entities to be more friendly and transparent in releasing economic data and easy access to it for the researchers.

Bangladesh’s total public debt (as per cent of GDP), 34.7 per cent, was among the lowest in South Asia in FY20, with Sri Lanka (112.2 per cent) and Bhutan (120.7 per cent), being the highest, according to IMF.

The total outstanding debt amount in FY21 in Bangladesh was $131.14 billion. It increased by $16.45 billion on average for the past three years, which was about 2.5 per cent of GDP.

In FY21 only, total public debt increased more than $18.64 billion (additional 2.2 per cent of GDP), of which more than 54 per cent was domestic debt.

The total debt as percentage of GDP decreased in Bangladesh between FY08 (38.8 per cent) and FY17 (28.2 per cent). It has since increased between FY18 (29.5 per cent) and FY21 (36.9 per cent). The linear decadal growth rates were 44.1 per cent (FY02 to FY11) and 66.6 per cent (FY12 to FY21).

Per capita outstanding debt is $432 (FY21), the annual increase of outstanding debt (FY20 to FY21) – $9.62 billion and annual increase in DSL – (FY20 to FY21) – $0.7 billion.

Total outstanding external private debt amount in Bangladesh was $18.69 billion in FY21, the share of external private debt in total debt increased between FY03 (3.9 per cent) and 2021 (14.5 per cent).

Source: UNB