Bangladesh must learn to say 'no' to supply-driven, lender-pushed projects

Foreign debt is not new to Bangladesh. Immediately after independence, rebuilding a war-torn economy almost inevitably required foreign assistance. But now, five decades later, we have to ask ourselves a crucial question—do we still need to depend on foreign aid as much as we had? We also need to ask, does the post-fascist government have to shoulder debts created by the past corrupt government? 

These are not just economic questions—it is deeply political and ethical. Borrowing is never merely about money; it carries power, decision-making, and the responsibility that will fall on future generations.

Foreign aid is basically loans from bilateral and multilateral sources. They are called aid because they have some grant elements; they are long term (i.e., longer repayment period); and they are at concessional rates. These features are not due to any generosity of the so-called development partners; but because there is no default risk – sovereign loans cannot be defaulted.  

International norms, including UN guidelines, emphasize Responsible Borrowing and Lending. Borrowers must use loans responsibly, and lenders must verify that projects are sustainable and funds are not misused. Just as a banker cannot lend without proper due diligence, the same standard must apply to international lenders. Failure makes the lender equally accountable. Therefore, we need to consider morality, accountability, and responsibility.

When I joined the government, these challenges became immediately clear. The Economic Relations Division (ERD) was once called the External Resources Division, reflecting a time when we relied heavily on foreign aid. In 1975 when we joined the LDC group with our per capita income of approximately $230, we chose an aid-dependent development model that restricted our policy independence and policy capabilities. Dependence on foreign aid also made government budget constraint soft (laxed) while tax effort or domestic resource mobilization remained lazy. Thus, we remained in a vicious circle of debt.

On the other hand, Vietnam chose a trade and investment driven development model that allowed it to chart its own independent development path. In 1975 – the year we joined the LDC group, Vietnam defeated the US after a devasting 25-year long war; it had to unify the country during the worst global economic situation with per capita income of meagre $82. Yet, Vietnam decided not to join the LDC club. Today, ironically, Vietnam is far ahead of us, with a higher tax-GDP ratio, more free trade agreements and larger flows of foreign direct investment than ours.

Today, we have to seriously question the aid-dependent development model. Rightly, the ERD was renamed Economic Relations Division with the same acronym. In hindsight, I can say, it was a serious mistake to keep the same acronym. Unfortunately, it is business as usual. Instead of working for enhancing economic relations – foreign trade and direct investment, ERD continues to search for external funds from so-called development partners.

ERD is composed of eight wings, each with a monthly target for how much loan they can secure. This system creates perverse incentives; it encourages officials to chase loans desperately, often agreeing to whatever conditions donors set or considering alternative funding modes. It reduces our negotiating power. I have tried to change this, but entrenched bureaucratic habits and resistance made it difficult. Many have grown comfortable with this way of working.

For the last fifty years, the culture of development projects has followed a predictable pattern. Imagine you are a wing chief or secretary at ERD. JICA or the ADB invites you on an educational trip to Japan, covering all expenses. It appears as an innocent offer. You take government approval, carry project wish-lists (without any feasibility study) from various ministries, and attend the trip.

You may propose ten projects; the donor likes three that fit their own strategy. You return and congratulate those whose wish-lists have been chosen in principle by the development partners. 

But this process is not based on real demand or competition. Donors have local staff whose promotions depend on how many loans they can push. The head office instructs its local office to contact the relevant ministries to offer feasibility studies and even allow the study's costs to be charged to the loan. Officials see no ministry expenditure and agree. Over time, this creates a culture of dependency.

Donor-appointed consultants often design the projects. Many a time, these designs are copied from elsewhere, without considering Bangladesh's climate, geography, or local context. Tender conditions are also written by donor agents so local companies cannot compete—requiring decades of experience, for example. Unsurprisingly, only donor-affiliated firms win the contracts, and costs inflate three or four times compared to what a local, competitive market would deliver.

In short, the donors (i.e., lenders) do feasibility studies, design projects, estimate costs and even write tender documents. This drives up expenses. We need to revisit the $40 billion worth of loans in the pipeline and evaluate projects based on merit, talent, and local needs. No development or infrastructure project should proceed for funding before proper in-house (if needed inter-ministerial) feasibility study (financial, social and environmental). Perhaps we can consider expanding the IMED's mandate to include this task. Project feasibility studies must also consider alternative financing modes. Profitable projects like MRT could have been implemented under a public-private partnership (PPP), reducing the debt burden on government finances.

Why is government borrowing for every project? Projects like metro rail have high demand and could be commercially viable. In a PPP model, risk and reward are shared. The government can provide land and policy support, while private investors fund construction.

ERD has primarily focused on securing donor funds for projects at the expense of its core mandate: fostering trade and economic relations abroad.

Many current projects are already proving costly mistakes. Take for example, the BRT from the airport to Gazipur—it is a complete loss. Original planning did not account for traffic congestion and the issue of pedestrian crossing. Reviving it now would cost the same as building anew. A simpler, cheaper solution would be to widen roads, remove central lanes, and use smart traffic management with CCTV and proper lane enforcement. Expensive new infrastructure would not have been necessary.

For projects already completed, like the Karnaphuli Tunnel or Payra Port, our responsibility now is to maximize their use. For example, private jetties on the Karnafully Riverbank (East side) could be leased on a long-term basis by the port authority. This should increase tunnel traffic, ease congestion in Chattogram Port, and allow trucks to access the elevated expressway directly. Negotiations with the private sector must focus on broader economic benefits, not narrow bureaucratic thinking.

Debt management is fragmented across multiple divisions—ERD, Bangladesh Bank, and the Internal Resources Division—resulting in a lack of clarity about the country's real debt picture.

Debt should never fund salaries or vague "capacity-building" programmes; borrowing must focus on productive, revenue-generating projects. Loans taken for budget support or mislabelled "capacity-building" should be phased out.

A persistent problem is that large infrastructure projects often originate with donors, who conduct feasibility studies, design projects, estimates costs, and even writes tender conditions. This creates supply-driven projects, where loans dictate location and purpose rather than real demand or local conditions.

Breaking free from Bangladesh's aid-dependent development model requires structural reform. Project selection, incentive structures, and debt management must change. Most importantly, citizens must be placed at the centre. Development is not about borrowing—it is about improving lives. Language matters. Terms like "stakeholders" or "development partners" are not neutral—they give foreign lenders a claim in national policymaking. The state's responsibility is to the citizens; citizens are "right holders". Calling them stakeholders invites outside interference. 

We must end supply-driven, donor-imposed projects. Project costs should match local capacities, unnecessary infrastructure should be removed, and cost-effective solutions prioritized. ERD must concentrate on its core mandate and work in close collaboration with the Ministry of Commerce and Foreign Affairs. The Finance Ministry must respect budget constraint and follow the golden rule of fiscal policy, i.e., borrow only for the development budget; not for the recurrent expenditure. 

We must reduce our dependency on donors, enhance our domestic resource mobilization efforts, and encourage private sector (both domestic and foreign) participation in profitable projects, while ERD works on expanding economic (foreign trade and investment) relations.

Abridged from an interview with TBS Senior Staff Correspondent Saifuddin Saif.