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FRIDAY, MAY 30, 2025
Foreign financing...capacity to utilise a big question

Budget

Titu Datta Gupta & Saifuddin Saif
08 June, 2020, 11:05 pm
Last modified: 09 June, 2020, 12:50 pm

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Foreign financing...capacity to utilise a big question

The government expects higher amounts from external sources in the coming fiscal year despite the fact that Covid-19 pandemic has slowed the development works, leading to slower disbursement of committed project aid

Titu Datta Gupta & Saifuddin Saif
08 June, 2020, 11:05 pm
Last modified: 09 June, 2020, 12:50 pm
Foreign financing...capacity to utilise a big question

The Covid-19 pandemic has raised the need to spend more on priority sectors like health and education, but since the revenue collection prospect looks bleak in a crumbling economy, the government will have to rely more on foreign financing.

But the poor uptake of foreign loans this year makes it doubtful how much foreign funds can be used the next year unless development projects are re-prioritised and quality of work improved, economists warn.

The net foreign loan target for the current fiscal was set at Tk63,848 crore, which has been brought down to Tk52,709 crore in the revised budget.

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Economic Relations Division officials said implementation of development projects has also slowed down from January and was hobbled further by the shutdown in March. Activities of the partner development organisations have also slowed down since January this year due to the Covid-19 outbreak.

Higher amounts are expected from external sources in the coming fiscal year despite the fact that Covid-19 pandemic has slowed the development works, leading to slower disbursement of committed project aid.

The government expects Tk76,004 crore in net foreign funds, including Tk70,502 crore ($8.32 billion) for Annual Development Programme (ADP) for the next fiscal year (2020-21), —a 44% increase from the net amount put in the revised budget for the current fiscal year, according to draft figures available from ERD and Finance Division.

A report from ERD says foreign loan commitment dropped 38 percent in April compared to the corresponding month of the previous year as Covid-19 outbreak has fully engaged the attention of the government and its development partners.

Only Covid-19 related projects and need for budgetary support are getting priority over other development projects, said an ERD official.

As a result, aid for other development projects has been affected.

From February to April this year, the government got $369.94 million in commitment from development partners.

According to the latest ERD report, the development partners committed to provide $3.86 billion in the July-April period of the 2019-20 fiscal year, down from $6.23 billion during the same period last fiscal year.

Foreign aid disbursement figures also saw a decrease in the current fiscal year.

The disbursement amount stood $4.78 billion over the first 10 months of the current fiscal year, down from the $4.90 billion from a year-ago period.

But this downtrend should not be considered a cause for concern, according to Dr Mirza Azizul Islam, former adviser to a caretaker government. He says there is nothing to worry about if foreign aid goes down.

"Our main problem is under utilisation of funds," he said.

"We cannot use the money that is stuck in the pipeline due to a slowdown of project implementation. Covid-19 has further reduced the projects' progress," he explained.

Slower disbursement, mainly due to the inability of the implementing agencies to utilise development funds, led to accumulation of undisbursed funds to $44.33 billion in the pipeline as of April.

ERD official hoped foreign finance commitment would increase when some loan agreements and offers, like World Bank's $250 million budget support, get final approval.

Moreover, they said, the Japan International Cooperation Agency (Jica) is expected to sign an Official Development Assistance package worth $2.18 billion this month to fund eight important infrastructure projects.

Former ERD secretary Monowar Ahmad says getting fund commitment might not be a problem even in the pandemic situation as development partners have specific annual programmes.

"But there is a possibility that disbursement may slow down as the pace of project implementation won't be as desired so long as the pandemic persists," he said.

Foreign contractors, consultants and employees will be away from the project sites due to the pandemic which will continue to affect the implementation and ultimately lead to lower disbursement of committed foreign funds.  

Stressing the need to change the philosophy of budget making, Centre for Policy Dialogue's Distinguished Fellow Professor Mustafizur Rahman said, "Covid-19 has brought us to a new reality and we have to rethink our priorities."

To keep aside enough money for emerging priorities, the government may suspend those locally-financed projects whose implementation rate is less than 30 percent, he suggested at a videoconference with The Business Standard recently.

In an article published in The Business Standard, Dr Monzur Hossain, senior research fellow of BIDS and Dr Zahid Hussain, former lead economist of the World Bank's Dhaka office said budget deficit could widen in the pandemic context, which can be financed through pragmatic resource mobilisation from both domestic and foreign sources.

But budgetary allocations and priorities in the face of Covid-19 crisis should be different than the previous years, they viewed. "Anecdotal evidence on wasteful use of public funds are aplenty. If this is not the time to clamp down on such expenditures, when will it be?"

Economy / Top News

Foreign financing / Budget

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