Infrastructure projects to get $5.7b unspent foreign funds

The government has set a target of using $5.7 billion or Tk 44,463 crore from the unspent foreign aid in the pipeline in the next fiscal year, nearly double that of the outgoing fiscal year, to bankroll some key infrastructure projects. 

It seeks to increase utilisation of foreign aid to reduce dependency on costly domestic borrowing, Finance Minister AMA Muhith said.

The money will be used in large projects such as Rooppur Nuclear Power Plant, Karnaphuli tunnel and Padma bridge rail link.

The utilisation rate for foreign aid is fairly low. Every year, most of the funds remained unused due to poor implementation. Inefficiency, excessive bureaucracy and abrupt changes of project directors are blamed for the poor utilisation of foreign aid.

Muhith is aware of the situation.

To address the issue, he said the government was implementing structural reforms in project design and implementation stages.

If the government had mobilised the targeted aid, spending of low-cost funds would have received a major boost. 

Foreign aid commitments have gone up in recent years, but the utilisation capacity of ministries and divisions didn't improve, leaving a huge amount in the pipeline.

The unused foreign aid in the pipeline reached new high of $22.95 billion in March. The amount accounts for about 40 percent of the yearly development budget.

Mustafizur Rahman, executive director of Centre for Policy Dialogue, said Bangladesh should avail the low interest foreign aid and loan opportunities as much as possible to mobilise fund for deficit financing.

“Our debt servicing record is good. Our outstanding foreign debt is manageable. On the other hand, the interest rate of the aid money is also low.”

Bangladesh would not be able to enjoy the low cost foreign aid for too long, the economist said last week.

Once the country's per capita incomes goes above $1,200 as per the World Bank criteria, it would lose the low-cost loan opportunity and would be graded as a blended country that receives both concessional and non-concessional loans, he added. 

The domestic credit burden is deepening and the domestic loans have high costs. The more Bangladesh delays the utilisation of aid money in the pipeline, the more money it would lose as it becomes richer, said Mustafizur.

Till March this fiscal year, the development partners had pledged $3.81 billion, but $2.57 billion was disbursed during the period, according to official estimates.

Economists said as the government failed to reap the benefits of the available foreign aid, it is being forced to borrow funds from domestic sources at an interest rate of 7 to 8 percent against 1 to 2 percent for donor funds. Furthermore, excessive domestic borrowing by the government crowds out private sector investment.