Is Foreign Debt a Problem for Bangladesh?
Is Foreign Debt a Problem for Bangladesh?
Part-A
Foreign debt in Bangladesh
Introduction:
External debt is one of the sources of financing capital formation in any economy. Developing countries like Bangladesh are characterized by inadequate internal capital formation due to the vicious circle of low productivity, low income, and low savings. Therefore, this situation calls for technical, managerial, and financial support from Western countries to bridge the resource gap. On the other hand, external debt acts as a major constraint to capital formation in developing nations. The burden and dynamics of external debt show that they do not contribute significantly to financing economic development in developing countries. In most cases, debt accumulates because of the servicing requirements and the principal itself. In view of the above, external debt becomes a self-perpetuating mechanism of poverty aggravation, work over-exploitation, and a constraint on development in developing economies.
Public borrowing can be seen by private investors as a warning signal of the government becoming bankrupt within the foreseeable future. They may also fear that government will impose higher taxes in future in order to facilitate the repayment and servicing of the loan.
In that case private investors will become less enthusiastic to invest. However, policy makers have to know whether public borrowing is followed by any crowding- out effect on investment, through whatever channel, and to what extent and whether the detrimental effect of such actions outweighs the benefit coming from the use of borrowed money, as is argued by the classical.
What is public debt?
Public debt is the entry records of cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be
Part-A
Foreign debt in Bangladesh
Introduction:
External debt is one of the sources of financing capital formation in any economy. Developing countries like Bangladesh are characterized by inadequate internal capital formation due to the vicious circle of low productivity, low income, and low savings. Therefore, this situation calls for technical, managerial, and financial support from Western countries to bridge the resource gap. On the other hand, external debt acts as a major constraint to capital formation in developing nations. The burden and dynamics of external debt show that they do not contribute significantly to financing economic development in developing countries. In most cases, debt accumulates because of the servicing requirements and the principal itself. In view of the above, external debt becomes a self-perpetuating mechanism of poverty aggravation, work over-exploitation, and a constraint on development in developing economies.
Public borrowing can be seen by private investors as a warning signal of the government becoming bankrupt within the foreseeable future. They may also fear that government will impose higher taxes in future in order to facilitate the repayment and servicing of the loan.
In that case private investors will become less enthusiastic to invest. However, policy makers have to know whether public borrowing is followed by any crowding- out effect on investment, through whatever channel, and to what extent and whether the detrimental effect of such actions outweighs the benefit coming from the use of borrowed money, as is argued by the classical.
What is public debt?
Public debt is the entry records of cumulative total of all government borrowings less repayments that are denominated in a country's home currency. Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be