59 municipalities excluded from future projects due to loan defaults

Infograph: TBS

The authorities of the Bangladesh Municipal Development Fund (BMDF) have opted to exclude 59 municipalities from their upcoming projects due to the municipalities' inability to repay the loans obtained from the fund.

Besides, the Local Government Division has said the condition of loan repayment will be a prerequisite for the inclusion of the defaulting municipalities in their upcoming projects.

In a letter addressed to the Local Government Division, the BMDF reported a total outstanding amount of Tk68.40 crore owed by these municipalities, which have pending payments ranging from at least one to 36 instalments, until September of the previous year.

Data reveals that some of the loans were acquired from the BMDF, established under the Ministry of Finance in 1999, more than a decade earlier.

On 12 December, the division directed the mayors of the defaulting municipalities to promptly take initiative for the expedited repayment of the loan instalments.

Abul Mansur Md Faizullah, managing director of the BMDF, told TBS that municipalities failing to meet loan instalments will neither receive new loans nor be considered for inclusion in new projects. Additionally, repayment of outstanding loans is a prerequisite for participation in the projects of the Local Government Division.

He said "robust measures" will be taken to recover these overdue instalments. Some municipalities, he noted, are not currently prioritising the issue due to the absence of new projects with the BMDF.

Around a month and a half ago, letters were dispatched to the mayors of the 10 municipalities with overdue instalments. While the mayor of one municipality sent a representative, there has been no response from the others, he added.

Meanwhile, mayors from several municipalities told TBS that their overdue loan instalments result from their expenditures surpassing their income.

Officials from the BMDF and the Local Government Division said while it is true that the revenue generation of the municipalities is insufficient, the primary cause of the delayed loan instalments lies in the lack of commitment from the respective municipalities.

As per an LGD official, BMDF extends loans through projects and diverse programmes aimed at income-generating activities, encompassing the construction and development of municipal markets, as well as kitchen markets across 331 municipalities in the country. Additionally, loans are allocated for the construction and development of roads, drainage, and footpaths within municipalities.

The funding for these initiatives is derived from loans obtained by the government from the World Bank. Municipalities are expected to reimburse this loan in 37 quarterly instalments spanning a period of 10 years.

The BMDF retrieves the loan funds from municipalities and subsequently returns them to the government. The government, in turn, repays the loans to the development partner. The official noted that due to delayed repayments from certain municipalities, the BMDF had to use its own funds to fulfil its obligations to the lenders.

The official, speaking anonymously, said some municipalities have mismanaged the allocated loan funds. Instead of directing investments toward income-generating activities, these municipalities have chosen to invest in projects such as road construction, footpaths, and drainage.

Furthermore, there are instances where municipalities have escalated expenditures without a corresponding increase in income. Municipalities are expected to operate within their own revenue, a principle that is currently not being adhered to, the official said.

Defaulting municipalities

As of September last year, Swarupkathi municipality in Pirojpur district holds the record for the highest instalment arrears, with a default on 36 instalments accumulating a debt of Tk19.86 lakh, according to the BMDF.

Mayor Md Golam Kabir of Swarupkathi Municipality said the loan in question was acquired 15 years ago under a former mayor's administration, funding the construction of two roads. However, these projects have not generated any income.

While Grade A municipalities like Swarupkathi receive an annual allocation of Tk72 to Tk80 lakh from the Annual Development Programme (ADP), the municipality faces challenges due to insufficient income, making debt repayment a formidable task, he said.

Despite the difficulties, Mayor Md Golam Kabir expressed his commitment to promptly settle the outstanding Tk19 lakh.

Moreover, Kumarkhali Municipality in Kushtia has 35 outstanding instalments, Kalia Municipality in Narail has 33, Mandumala Municipality in Rajshahi has 33, Galachipa Municipality in Barisal has 32, Banshkhali Municipality in Chattogram has 31, and Ishwarganj Municipality in Mymensingh has 30 overdue instalments. Additionally, 12 other municipalities owe 20 to 29 instalments, while the remaining municipalities have outstanding instalments ranging from one to 19.

Md Abdus Sattar, chairman of Ishwarganj Municipality, attributed their arrears to a stagnant local income. Nevertheless, concerted efforts are underway to fulfil the repayment obligations to the BMDF.

SM Sirajul Haque, mayor of Tangail Municipality, expressed the municipality's inability to boost its income despite efforts. He said they are trying to meet loan instalments from their existing income.