Foreign aid, debt and tax revenue are the most influential
macroeconomic variable which certainly influence the pattern of government
spending and it is true for all the countries of the world. In developing
countries aid and debt uses to finance different development needs more because
of thin tax bases. Thus, a large amount of aid and debt in recipients’ budgets
have a direct effect on spending (Njeru, 2003; Morrissey, 2012; Herzer and
Morrissey, 2013; Tagem, 2017).
In south Asian countries the amount of tax revenue is very negligible and
because of these poor amount government spending affects a lot and most
importantly it hampers the development activities (Martinez-Vazquez, 2012).
Positivity creates when aid and debt work for financing the needs (Njeru, 2003; Morrissey, 2012; Herzer and Morrissey, 2013;
Tagem, 2017) and the effect become negative when foreign
aid creates aid dependence and debt creates huge liability for the recipient
countries. Domestic revenue generation, budget planning and institutional
quality get affected by these (Gupta and Tareq, 2008). The relationship among
foreign aid, debt and government spending largely depends on the donor’s
conditionality, composition of them, proper using of the money and good fiscal
policy also (Burnside and Dollar, 2000; Tagem, 2017).
reseach work very precisely focuses on the relationship among foreign aid, debt, tax revenue
and government spending and their impact on government spending where debates
like aid effectiveness, causes behind thin tax bases and liability of debt
become concern for the recipient countries. But there is no scope to deny that
being the developing countries South Asian economies have to depend on external
help (foreign aid and debt) for financing the needs.
2.2 Trends of Foreign Aid, Debt, Tax Revenue and Government
Spending in South Asia
Basically, The South Asian region have eight countries namely
Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and
Sri-Lanka. The countries have similarities according to some common
characteristics as well as dissimilarities among themselves for example- on the
basis of geographical variation, different constitutional rules and
regulations, relationship with different countries, on the basis of
international political environment, governance system, population density etc.
So, obviously there will be different trends of receiving aid, taking loans,
getting tax revenue and government spending. The country specific trends of
foreign aid, loans, tax revenue and government spending are presenting in this
2.2.1 Trends of Foreign Aid, Debt, Tax Revenue and Government
Spending in Bangladesh
Bangladesh, a developing country of
South Asia depends largely on the aid inflow and external debt for obvious
reasons. So, the importance of foreign aid and debt for the economy of
Bangladesh is enormous.