Debt Profile: Bangladesh

by Razu Ahmed    July 12, 2008

Debt Profile: Bangladesh

Government or public debt in Bangladesh consists of domestic and external debt. External Debt is directly linked to borrowing from bilateral and multilateral institutions for project funding through the Annual Development Programs and budget support systems. Domestic borrowing is generated for financing segments of the budget deficit in addition to intra-year cash flow management. In general, external borrowing is applied to long term commitments while domestic borrowing is required for short, medium and long term commitments.

Over the last few years, government borrowing from domestic sources has dominated over borrowing from foreign sources. The dominance of domestic borrowing over foreign financing continued during FY07. During FY07, total government borrowing was Tk. 597.9 billion, out of which Tk. 522.0 billion (87 percent) came from domestic sources. The net flow of government borrowing from external sources remained nearly stagnant in FY07 at the FY06 level (Bangladesh Bank: 2008)

Composition of Financing of Budget Deficits

(% of GDP)

Source:                      Finance Division, Ministry of Finance, Bangladesh Bureau of Statistics (BBS) and Bangladesh Bank (BB).

Bangladesh, like other developing countries, has been a regular recipient of foreign aid or external assistance in order to lessen the gap between savings and investment and to mitigate the balance of payment deficit. However, there has been serious debate over the issues such as low performance in aid-utilization, donors’ stringent and one-size-fits-all “conditionalities” and global aid politics that are believed to undermine the potential benefits that aid could have brought to the development scenario of the country. The apprehension over aid issues is felt in different countries around the world and also among the donors themselves. As a result, the idea of aid effectiveness has received increasing attention and importance in international discussions that generates hope that the international structure of aid would create sustainable development outcome for the poor countries. Besides, the concept of “debt sustainability” has attracted attention to policy makers and experts both at national and international level, as a low-income developing country like Bangladesh is paying too much for debt servicing fundamentally at the cost of financing basic services to its poor people. The issue has become a dreadful one as it has direct bearing on attainment of MDG targets. Clearly, like many other poor countries, Bangladesh has insufficient resources for the implementation of MDGs as the country continuously pay on an average 1060 million every year during the last 6 years from 2001 to 2006 (of which $620 for MLT), out of its scarce budget, on foreign debt servicing.

However, it is often said that untold stories are more realistic that what is told. If those figures are taken as “told stories”, the untold stories are nothing but the “conditionalities” attached with external assistance particularly with the MLT loans taken from the so-called international donor communities including the IFIs. Withdrawal of state responsibilities from providing basic services to its people and privatization of those services mean that people are exposed to more vulnerability making the dream of poverty eradication and achieving the MDG targets a distant one.  

(This article is a part of a research report  jointly prepared by Monowar Mostofa and Razu Ahmed)

This work is licensed under a Creative Commons Attribution 3.0 License.

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