A review of public expenditures in Bangladesh: Evidence on sustainability and cyclicality

Abstract

Fiscal discipline has been a strength in Bangladesh’s macroeconomic management. Budget deficits have been consistently maintained at prudent levels over time. Consequently, public debt is low, and Bangladesh is assessed to be at low risk of debt distress over the medium to long term. This assumes sustained economic growth at 6.5-7 percent every year for the next 20 years. However, contingent liabilities, particularly those from state-owned financial and non-financial enterprises, risk putting pressure on the fiscal stance. Low revenue mobilization and weak public investment management have limited the growth and equity impact of fiscal policy. Tax revenues and expenditures also appear to be procyclical, implying that fiscal policy does not act as an automatic stabilizer, thus complicating the management of macroeconomic stability challenges.