Foreign aid commitments slide 63%, disbursements 17%

Bangladesh has witnessed a sharp decline in foreign loan commitments and disbursements for development projects in the first eight months (July-February) of the current fiscal year, which may overwhelm the foreign exchange reserves further.

According to data from the Economic Relations Division (ERD), commitments of foreign aid declined by 63.19% to $1.78 billion in the July-February period, down from $4.84 billion in the corresponding period of the last fiscal year.

In addition, foreign aid disbursement has decreased to $4.87 billion in the eight months of FY23, registering a 17% fall compared to $5.89 billion in the same period of FY22.

According to ERD officials, the interest rate on floating rate loans is high due to the global economic situation caused by the Russia-Ukraine war. Currently, the six-month Secured Overnight Financing Rate (SOFR) is around 4%, which is why the government is not taking loans at floating rates.

Infographic: TBS

The World Bank board approved $2 billion for five projects. Though the lender has approved the loan at its board, government agencies could not table four of the projects before the Executive Committee of the National Economic Council (Ecnec), which delayed the loan signing. However, an agreement for one project has been signed already.

The government cannot take a fixed-rate flexible loan as the approval process for these development projects has not been completed yet, which is affecting the commitment of development partners, officials said.

ERD officials also said Bangladesh will not get budget support as per demand of this fiscal year as it got in last year. So far, only $250 million in budget support has been received from the Asian Infrastructure Investment Bank (AIIB). Apart from this, the government is trying to get budget support pledges from the World Bank, Asian Development Bank (ADB) and Jica.

According to ERD data, the government in the last fiscal year received $3 billion in budget support (including money to buy vaccines) from development partners.

Meanwhile, the International Monetary Fund (IMF) approved its $4.7 billion loan to Bangladesh, releasing the first tranche of $476.27 million in February. But this amount was not counted in the ERD's calculation.

ERD officials said the IMF loan is not regular assistance and will not be counted as a foreign aid commitment for now. But it will be included in "The flow of External Resources 2022-23" at the end of the current fiscal year.

Dr Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies (BIDS), told The Business Standard (TBS) that foreign loan commitments have decreased because development partners are now giving more support to countries that are in worse economic conditions than Bangladesh.

"Besides, there is a huge amount of money (around $47 billion) in the pipeline from development partners in the form of commitments but we cannot avail it fast. That may be another reason why the development partners have less interest in pledging new commitments."

The Asian Development Bank (ADB) pledged the most assistance – more than $840 million — in the first eight months of the fiscal year. The second largest pledge of $300 million came from the World Bank.

According to people concerned, foreign loans are not being released as expected due to the lack of capacity in implementing development projects. In the revised Annual Development Plan (ADP) for the current financial year, no amount has been deducted from government funds but Tk18,500 crore has been trimmed from the allocation of foreign aid as per proposal of the implementing agencies.

ERD data also shows that the government's loan repayment saw an increase as Bangladesh paid $1.4 billion back to its development partners in the first eight months of the current fiscal year. The repayment amount stood at $1.3 billion in July-February of FY22.