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Unused foreign aid may affect country’s economic growth

Unused foreign aid may affect country’s economic growth
Unused foreign aid may affect country’s economic growth
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FT ONLINE

The growing amount of unused foreign aid in the pipeline may adversely affect the country’s economic growth and public finances as money involves debt-servicing costs, experts warn.

The total aid in the pipeline has hovered around $32-$36 billion over the last three fiscal years, according to the Planning Ministry’s data.

Aid commitments have been ballooning in the pipeline as the absorption capacity of government agencies did not improve as such.

Bangladesh’s decreasing dependency on aid has also contributed to the huge stockpile. Data shows that aid dependency decreased significantly to 1-2% from 12-15 % of the country’s total GDP about two decades ago, as more contributions come from domestic resources.

Dr Shumsul Alam, secretary to General Economic Division under the Planning Ministry, said foreign assistance from development partners has not reduced in recent years despite an increase in GDP. Referring to the Finance Division’s data.

“Our total GDP stands at Tk2,223,600 crore, while it was Tk1,956,055 crore in the last fiscal year,” he added.

“Although foreign aid flow showed an increasing rise in the current budget, it has been estimated at only 13% of the budget,” he said.

He, however, added that Bangladesh would financially be even stronger if the amount of external aid in the pipeline reduces, since it already reached the lower middle-income country status.

“Aid disbursement has slightly improved. But we are still lacking in efficiency to properly disburse the funds. Our inefficiency has been evident during negotiations with development partners,” Shumsul conceded.

Data shows that during 1995-2004, foreign aid accounted for 2.9 % of GDP, which came down to an average of 1.3 % of GDP by 2017.

In the current fiscal year, foreign aid utilisation target has been set at $7.6 billion (Tk60,817 crore), which is 67.78% higher than the current fiscal year’s goal,  while the foreign aid contribution are only 13% of the budget.  In the last fiscal year, it was 10.6%.

In the 2008-09 fiscal year, the amount of aid utilised was less than $2 billion, which crossed the $3-billion mark in the 2013-14 fiscal year.

Although Bangladesh could never use more than $4 billion of foreign aid a year, the government plans to utilise about $7.55 billion of aid in the fiscal year 2017-18.

AB Mirza Azizul Islam, an advisor to a caretaker government, said: “The capacity to utilise external aid is not improving. We are fretting over such a steep rise in aid in the pipeline as it will be adversely affecting the pace of our economic growth and social development.”

Pointing out some of the government initiatives taken to ensure proper utilisation of the unused aid,  Azizul, however, said a joint committee involving government officials and representatives of development partners was formed to address obstacles to the speedy disbursement of external aid.

“The government has decided not to rotate project directors. Also, it is slowly preparing a roster of directors. A new portal has been created to ensure transparency in proper utilisation of aid. An e-tendering system for public procurement has been initiated. All these moves are positive, but they have yet to show signs of improvement in aid utilisation,” he added.

The economist said amounts of foreign aid in the pipeline are increasing as development projects are not being implemented in time owing to difficulties in land acquisition and stricter rules of public procurement.

“The government is busy undertaking projects one after another rather than paying attention to accelerating disbursement of foreign aid. It is a failure on the part of our political leadership and administration,” he added.

Bangladesh must develop its capacity to go for blended finance by strategically leveraging the grants and concessional loans to raise more resources, particularly from the private sector. And in this case, the government will be able to keep financial costs of big projects lower, he observed.

Mirza Azizul said: “Asian Development Bank has already provided a mixed finance package to Bangladeshis for its development projects. Some of the loans are concessional and the rest are commercial as Bangladesh has reached the lower middle-income country status.

“The World Bank is, too, preparing a mixed finance proposal for Bangladesh.”

Foreign aid flow to Bangladesh during the first two months (July and August) of the current fiscal year  continued its encouraging trend as the aid disbursement during the period was $208.8 million higher than the corresponding period of the last fiscal year.

According to the latest data of Economic Relations Division (ERD), the overall foreign aid disbursement in July-August this year totaled $492.10 million against $283.30 million in the corresponding period of the last fiscal year.

Out of the totaled disbursed amount during the period, the portion of loan was $490 million while the portion of grant was $2.1 million. Of the total disbursed amount of $283.3 million aid in July-August in the last fiscal year, the portion of loan was $257.30 million while that of grant was $26 million, the ERD data shows.

Against the disbursement, the overall foreign aid commitment for the months of July and August this year was $725.2 million, of which $662.7 million came as commitment for loans while the rest of $62.5 million as grants.

For the period since Bangladesh’s independence up to June 30, 2016, a total amount of about $69.15 billion of foreign aid was disbursed with $26.50 billion as grants and $42.65 billion as loans.

Of the total amount, $6.87 billion as food, $10.91 billion as commodity, $47.81 billion as project aid and $3.57 billion as budget support were disbursed.

  • Asif Showkat Kallol

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