Expenditure on Interest rate

Expenditure on Interest rate

In case of non-development expenditure, usually the highest allocation goes to interest payment, both the domestic and foreign sources. This expenditure reduces the expenditure capacity in the development sector.

In FY 2013-14, the total expenditure on interest payment assumed at Tk. 277.43 billion which is 18.83 percent higher than that of FY 2012-13. In FY 2011-12, the interest payment on domestic and foreign sources were Tk. 216.04 billion and Tk.17.43 billion respectively. Interest payment reduced the spending on social expenditure.

Per capita debt burden is the sum of per capita domestic debt as well as per capita external debt. The trend of per capita debt burden appears to be increasing. In FY 2013-14, per capita debt burden of Bangladesh might increase to Tk. 3582.8 from Tk. 3389.8 in FY 2012-13. In fiscal year 2011-12, per capita debt burden was Tk. 2982.2 since FY2008-09; per capita debt burdens have been showing a sharp increasing trend. The ever-rising public debt has been exerting a serious pressure on the macro-economic stability of the country. It puts an upward pressure on real rate of interest by crowding the private investment out.

High public debt could ultimately lead to high taxes and put upward pressure on real interest rates which may aggravate the crowding out effect. When a government is no longer able to finance its deficit, it is forced to cut spending or to raise revenues, often at a time when fiscal policy is needed to help stabilise the economy.

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