The proposed budget for fiscal year (FY) 2004-05 has allocated Tk 6,533 crore or 19 percent of the revenue budget for interest payment on government borrowings, compared to Tk 5,832 crore or 21 percent in current year's revised budget and Tk 5,574 crore or 19 percent in FY 2001-02.

Back in FY 1990-91, the nation spent only Tk 662 crore or 11.68 percent of the revenue budget for the same purpose.

Until FY 1994-95, the government had to pay roughly equal amounts of interest for domestic and foreign loans. But now, domestic borrowing claims 83 percent of the total interest paid.

Economists fear this trend is pushing the nation into a 'debt trap' that, if the issue is not addressed immediately, will become a major impediment to its development.

"If we fail to implement the appropriate reforms, this will turn into a debt trap for the government," says M Hafizuddin, chairman of the Public Expenditure Review Commission (Perc).

On implementation of reforms, a high official of finance ministry says, "It is not possible to execute reforms overnight. They are being implemented slowly. Like, in recent times, several ministries have been merged with the view to gradually reduce the loan burden."

On the country's debt burden, economist Zaid Bakht notes, "The level of borrowing had increased at the fag end of the previous government, when it introduced some populist moves into the budget. After the present government had taken over, it tried to streamline the borrowing. But now, once again, the elections are approaching and so possibilities of undertaking populist projects and further increasing the loan burden reappear. The government therefore should be watchful to avoid such traps."

Central bank statistics show, in March last, the government's outstanding domestic borrowing stood at Tk 52,886 crore, which was Tk 48,494 crore a year ago and Tk 24,084 crore five years back. The government obtains these loans from banks as well as the public through issuing savings certificates.

Next year, the government intends to borrow a total of Tk 7,099 crore from banks and through savings certificates, which is 19 percent higher than that of the outgoing budget.

Of that total domestic borrowing, Tk 2,599 crore will come from the banks, which is 73 percent higher than that of the current budget. On the other hand, Tk 3,554 crore will be raised from the public through issuing savings certificates, which is 1.74 percent less than that of the running budget. However, there is a chance that this figure will ultimately increase, finance ministry sources said, as in the current year's budget, this amount increased during the revision.

The statistics also indicate another reason why the amount of interest is rising -- a decline in low-cost foreign borrowing. In the recent years, foreign grants have kept on sliding down in the budget. The proposed budget shows Tk 1,889 crore as foreign grants, which is 29 percent less than that of the running budget.

In the new budget, low-cost foreign borrowing has been set at Tk 6,960 crore, which is 30 percent higher than in the running budget. The projection appears to be ambitious, as the outgoing budget, which at the beginning expected a Tk 6,713-crore low-cost foreign borrowing, at the end could get Tk 5,329 crore. This negative trend in foreign grants is attributed to government's failure to implement donor-funded projects in due time.

Perc chief Hafizuddin says, by allowing wastage in different sectors, the government is bearing a lot of unnecessarily expenses. "Our [Perc's] report [released in December last] advocates some basic principles for expenditure: growth-oriented expenditure, spending for poverty alleviation and reducing wastage."

Hafizuddin adds, "We also have made specific recommendations on how to cut down wastage -- like curtailing the number of ministries, closing down loss-making public enterprises, like Telephone Shilpa Sangstha, and merger of sector corporations, such as BJMC and BTMC."

The Perc observes, "Some of our recommendations have been adopted. But, for an overall impact, majority of them should be adopted."

Until mid-eighties, the country spent more money for development works and less for revenue. During mid-eighties to mid-nineties, the two types of expenditure measured nearly equal, and from nineties onward revenue expenditure started to exceed that for development.