A noted economist on Wednesday expressed concern over the rising payments against debt servicing and said it will significantly shrink investment in sectors like health, infrastructure and education.
It would be a matter of concern if payment of debt servicing of the country increases from existing 18 per cent, said Dr Syed Mainul Ahsan, visiting Professorial Fellow of the Bangladesh Institute of Development Studies (BIDS).
He was delivering a lecture on "Debt and Development: Where is Bangladesh Headed?" organised by the BIDS at its office in the capital, with BIDS Director General Dr Binayak Sen in the chair.
Dr Ahsan said the annual debt servicing of the country is increasing, and, say, if it goes up to 28 per cent, it will significantly affect financing the necessary investments.
Mr Ahsan, who is also a Professor Emeritus of Concordia University, Canada, said the long- and short-term loans should be discussed separately as their impacts on the economy are different.
Quoting an IMF research, he said the central banks should not finance government expenditure, but might be allowed to purchase government securities in the secondary market for monetary policy purposes.
In terms of practice, he said about two-thirds of the countries in the sample either prohibit the central bank lending to the government or restrict it to short-term loans only.
The noted economist also said the terms and conditions of short-term loans should be established by law.
He said the central bank financing to the government should be disclosed on a regular basis, including the amount and financial conditions applied to these loans.
"Though the government currently discloses this, they do not disclose the conditionality," he added.
He said large debt and financing non-market rates could create inequality in the society between those with and without having excess liquidity to benefit from the process.
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