Govt to set six conditions to prevent delays, waste in foreign-funded projects

Highlights:

• ERD sets six mandatory conditions before signing foreign loan deals
• Conditions include land acquisition, tenders, and hiring key personnel
• Goal: avoid delays, cost overruns, and wasted commitment charges
• Poor prep work causes big delays in many Bangladesh projects
• Example: Dhaka-Sylhet highway stalled, only 4.55% progress
• Bangladesh paid millions yearly for unused foreign loan funds

To ensure timely implementation of foreign-funded development projects and prevent unnecessary expenditure, the Economic Relations Division (ERD) plans to make six pre-conditions mandatory before signing loan agreements, including completion of land acquisition, finalisation of the tender process, and recruitment of key project personnel.

According to ERD sources, a draft circular outlining these conditions is awaiting final approval from the Chief Adviser's Office.

ERD officials say the initiative aims to ensure the "time value of money" in project execution and to avoid excessive spending such as commitment charges, which are incurred when funds remain unused.

The circular is being prepared in consultation with relevant ministries, divisions, and development partners, they say.

A senior ERD official, requesting anonymity, said the conditions would apply not only to new projects but also to those currently under process or in the pipeline.

"Ministries and implementing agencies must therefore be proactive from the Project Development Proposal (PDPP) stage," he said.

Experts say the move will make foreign aid utilisation more effective and help avoid cost overruns and delays. They consider this a timely and pragmatic reform in the country's development project implementation process.

Dr Mustafa K Mujeri, director general of the Bangladesh Institute of Development Studies (BIDS), said many routine or preparatory tasks in development projects can and should be completed before a project officially begins.

"Completing all preparatory work before signing agreements with development partners is key to avoiding delays during project implementation. However, this requires a change in mindset among the officials involved," he said.

Dr Mujeri also pointed out that corruption is one of the primary reasons many development projects in Bangladesh fail to finish on time.

"Often, officials deliberately delay implementation to extend project deadlines, which increases costs and creates opportunities for corrupt practices."

The six pre-conditions

According to the draft circular, the ministry or division concerned must fulfil six key conditions before signing any loan agreement for foreign-funded projects.

The first condition is securing approval of the project's Development Project Proposal (DPP) or Technical Assistance Project Proposal (TAPP) by the appropriate authorities, in accordance with the Planning Commission's classification.

Second, the recruitment of essential project personnel, including the project director, must be completed to ensure the swift commencement of project activities.

The third requirement is the completion of necessary land acquisition by the implementing agency under the respective ministry or division.

As the fourth condition, a clear and comprehensive rehabilitation plan must be prepared for those affected by land acquisition and submitted to the concerned authorities.

The fifth condition requires completion of the entire tendering process up to contract awarding – including cost estimation, preparation of bidding documents, and related procedures for goods, works, and services.

The sixth condition stipulates that, where utility relocation is necessary for project implementation, a time-bound memorandum of understanding (MoU) must be signed between the implementing agency and the relevant utility service providers. Additionally, approval from the Finance Division must be secured regarding the terms of the subsidiary loan agreement (SLA).

How delays, cost overruns plague foreign-funded projects

ERD officials say most foreign-funded development projects in Bangladesh suffer from significant delays and cost overruns, primarily due to poor preparatory work and implementation bottlenecks.

They say in many cases, the grace period for loans ends before substantial progress is made, meaning the country not only misses the timely benefits of the projects but also incurs additional costs. Failure to utilise development partners' loans on time often results in the government having to pay commitment fees.

One glaring example is the Dhaka-Sylhet four-lane highway project, funded by the Asian Development Bank (ADB). Although construction has been ongoing for four years, physical progress stands at only 4.55%.

ERD officials say land acquisition complications have stalled work on 192.32km out of the total 209.32km highway. As of now, work is taking place on only 17km.

According to the Roads and Highways Department – the project's implementing agency – delays will lead to increased costs in the project. The project, which began in January 2021 and was scheduled for completion by December 2026, is currently estimated to cost Tk19,918.59 crore.

Another project facing similar setbacks is the World Bank-funded Sylhet-Charkhai-Sheola highway development project. Although it entered the implementation phase in 2023, the project has yet to finalise its tender documents, ERD officials said.

A report by the Roads and Highways Department reveals that the project includes three deputy project manager positions and two assistant engineer posts – none of which have been filled to date. The lack of these key personnel is hindering critical field-level activities, including land acquisition and utility relocation, the report noted.

Meanwhile, in another major project – upgrading the Sylhet-Tamabil highway to four lanes, funded by the Asian Infrastructure Investment Bank (AIIB) – contracts for three civil works packages have already been signed. However, required land acquisition is still pending, severely affecting progress.

Launched in 2020 with a targeted completion date of June 2025, the project has achieved only 7.94% physical progress in five years, according to RHD data.

Bangladesh pays millions in commitment charges

ERD officials say Bangladesh has been paying millions of dollars in commitment charges due to delays in utilising foreign loans.

According to a report by the Asian Development Bank (ADB) published in February this year, a commitment charge of 0.15% per annum is imposed on all undisbursed balances of Ordinary Capital Resource (OCR) loans. This charge begins 60 days after loan signing and accrues from the date the loan becomes effective.

The report revealed that out of a total $7.07 billion in OCR investment loans currently in Bangladesh's portfolio, $2.39 billion remains undisbursed. As a result, the country has cumulatively paid $30.89 million in commitment charges.

In 2024 alone, Bangladesh paid $3.58 million in commitment fees on unused ADB loans.