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June 12, 2025

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THURSDAY, JUNE 12, 2025
It is time to be cautious about foreign-funded projects

Budget

TBS Report
23 May, 2022, 09:00 am
Last modified: 23 May, 2022, 12:12 pm

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It is time to be cautious about foreign-funded projects

TBS Report
23 May, 2022, 09:00 am
Last modified: 23 May, 2022, 12:12 pm
Kazi Shofiqul Azam. Illustration: TBS
Kazi Shofiqul Azam. Illustration: TBS

As the grace period is expiring fast, even before completion of projects in some cases,  the amount of Bangladesh's external debt servicing is growing. From $1.9 billion earmarked for the outgoing fiscal year, the annual repayment amount may reach $2.5 billion in the next five years. Former ERD secretary Kazi Shofiqul Azam shares his thoughts with our senior reporter Saifuddin Saif on how timely implementation of development projects can ensure their intended economic returns and thus cushion the shocks from the rising cost of borrowing.

The government borrows funds from both domestic and foreign sources to finance the national budget.

Interest rates on foreign loans are much lower when compared to domestic loans. But, Bangladesh's foreign aid taking is becoming pricier, as the development partners are enhancing their interest rates and service charges because of rising per capita income in the country. Other loan terms are also becoming tougher. 

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Even then foreign loans are still reasonably cheap for Bangladesh. But, the situation will change sooner or later.

Bangladesh will have the opportunity to avail more foreign loans in line with the rise in per capita income in the future, but higher interest rates and stiffer conditions will make the loans dearer.

Payment of loans taken out for many big projects including the Rooppur nuclear power plant will start in the next few years, which will increase financial pressure on the government. 

Therefore, it is time to take a cautious stance in initiating foreign-funded development projects. Projects have to be selected based on their economic prominence. It would not be right to invest costly foreign funds in projects which are not that important. 

We should take lessons from the Sri Lankan crisis. We have not reached a situation like that of Sri Lanka, our situation could also be similar to Sri Lanka's if we are not careful.

We should estimate the costs of foreign-funded projects sensibly. For example, estimated costs of many projects including the World Bank-funded project to upgrade the Jashore-Jhenaidah highway from two-lane to a four-lane one, and the Akhaura-Sylhet dual gauge rail line project are very high. 

The estimated costs of projects should also be reasonable. If a project is implemented at a high cost, it will not be economically viable.

Expenditures on foreign-funded projects are also increasing because of the delays in project implementation. We are failing to finish most of the projects with the originally estimated cost. Therefore, the projects are witnessing upward revisions in their costs more than once. Principal repayment is starting even before the expiry of the grace period.

In this situation, project execution within the stipulated time should be made mandatory. 

There are some good examples as well. 

The Japan-funded Shahjalal International Airport Extension Project is one such project. This project is progressing at a good pace. It will be a profitable project for our economy. 

Another issue is that projects are not designed properly. Feasibility studies are not done correctly. And, all this causes project costs to rise at later times.

Again, some government agencies take out loans, other than soft loans, from development partners at high interest rates and on difficult terms. At present, the amount of such debt is more than $10 billion. An increase in these loans will only expose our economy to danger. We have to be careful about this too.

The ratio of Bangladesh's external debt to GDP is 16.94. If loans that are taken out through the Economic Relations Division (ERD) alone are taken into account, the ratio is 14.33%. At this point, our external debt-to-GDP ratio is at a tolerable level. Now this rate will increase.

Interest rate hikes on foreign loans have no direct relationship with a country's graduation from the LDC (least developed country) status. Interest rates are actually determined by calculating the per capita income. The World Bank sets interest rates by calculating per capita income in recipient countries. Other development partners follow suit.

Even though foreign loans are gradually getting costlier, they are still much cheaper when compared to loans taken from internal sources. 

But the risk is that the price of the US dollar is on the rise and so are the prices of commodities and inflation. These two risk factors are always there. Even so, external debts are still a better option for Bangladesh considering their interests and other facilities.

Up until fiscal 2016-2017, Bangladesh used to receive $3 billion in foreign loans every year. The figure went up to around $6 billion in FY18, and FY19. Last year, foreign donors disbursed over $7 billion in loans for Bangladesh. The volume is expected to hit the $10 billion mark within the next few years.

But, this will also increase our liabilities, and they will grow very fast as many large projects are in the final stages of implementation.

At present, foreign loans to the tune of $48 billion are in the pipeline for Bangladesh. Timely implementation of these projects will yield quick benefits for us. 

Hence, it is high time we focused on the implementation of our projects. 

But, we lack skills and technical knowledge in project implementation. Many foreign contractors are taking advantage of our weakness and delaying project implementation.

Expenditures on different parts of foreign-funded projects should also be reasonable. For example, consulting fees are very high for many projects, which need to be brought down to logical levels. Local experts should also be appointed as consultants alongside foreign experts. 

Unnecessary expenditures on development projects should be stopped.

Economy / Interviews / Top News

Foreign-funded projects / Foreign Loan / Foreign Funding / Foreign fund

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