Potential Effects Of Budget Deficit2008-09

Presented by:Md. Sadiqur Rahman Chowdhury

Rayhana SultanaHafiz-Al-Ashad

University of Liberal Arts Bangladesh

SupervisorLiton Chakraborty

Lecturer, School of Business

Comparison with previous yearEvents FY 2007-08 FY 2008-09

Amounts are according to the Percentage of GDP

Total Budget 15% 16.3%

Budget Deficit 4.2% 5%

Foreign Financing 2.0% 2.2%

Domestic Financing 2.2% 2.8%

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Comparison with previous yearEvents FY 2007-08 (Revised) FY 2008-09

Amounts are according to the Percentage of GDP

Total Budget 16.1% 16.3%

Budget Deficit 4.8% 5%

Foreign Financing 2.5% 2.2%

Domestic Financing 2.3% 2.8%

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Deficit in Budget 2008-09

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Comparison of financing sources

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Comparison of Domestic Financing Sources

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Consequence of Budget Deficit

S

D

Interest Rate

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Consequence of Budget Deficit

D

S

New Interest Rate S’

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Consequence of Budget Deficit

D

S

New Interest Rate

S’

D’

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Possible Effects of Budget Deficit

• Lending rate may rise• Private Investment may shrink (crowding out) • Unemployment may increase• Price level may boost up• Interest rate on bank deposit may increase

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Possible Effects of Budget Deficit

• Capital market activities may be hampered • Banking sector may show monopoly power• Growth rate of economy may slow down• The gap between rich & poor may be

enlarged

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Actions could be taken

• Government can urge banks to raise the paid up capitals

• Use capital market instruments• Find useless & unnecessary expenditures

and shift those to meet deficit• Allow undisclosed money to be invested

- Special Bond for Undisclosed money

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THANK YOU.

Any question?