Aid utilisation is at a critical juncture because of slow implementation of projects, causing extra time and cost and increased borrowing from domestic sources
The repayment of external debts rose by 20.39 percent in the first four months of the current fiscal year. Meantime, the disbursement rate of foreign loans dropped by 1 percent compared to the same period of the previous year.
The rising cost of external debt repayment and declining disbursement have put the country's economy under pressure. The Economic Relations Division's (ERD) report said that foreign loan agreement also went down by 39 percent.
The ERD report also said as much as $1433.7 million has been disbursed during July-October of the 2019-20 fiscal year – $13.05 million less than the same time of the previous year.
The disbursement target is $8477 million for the current fiscal year – $2266.23 million more than the last fiscal year. The ERD data say only 17 percent loans have been disbursed in the first four months of this fiscal year.
The ERD concerned at the state of the Annual Development Programme (ADP) implementation as the gap between the target and actual disbursement has widened.
The Foreign Aid Budget and Accounts (FABA) wing of the ERD has sent letters to its offices to speed up disbursement of foreign loans.
The ERD will also hold a meeting of the "loan package committee" on Sunday.
The Implementation Monitoring and Evaluation Division (IMED) said the first four months of this fiscal year used Tk723 crore less in ADP implementation than the same period of the last year.
A total of Tk7637 crore of foreign aid has been spent in four months on ADP implementation, which is nearly 10 percent of Tk71,800 crore allocation.
In the same period of the last fiscal year, the implementation rate was 13.93 percent, which means as much as Tk8360 crore was spent.
This shows that the use of foreign assistance for ADP implementation decreased by Tk723 crore during the July-October period of the 2019-20 fiscal year.
Expressing concern, Planning Minister MA Mannan told The Business Standard, "The disbursement rate has been lower than expected as the government officials failed to understand disbursement terms and the bureaucratic complications of the lenders."
Terming the falling disbursement "concerning", the minister said that the ERD was instructed to look into the causes and submit a report on it.
The ERD has begun revising ADP as disbursement has slowed down. The finance ministry's division has asked all the ministries and other divisions to reassess foreign loans in the revised ADP.
Analysing several indicators, the ERD in its annual report has claimed that the country has more foreign borrowing capacity.
Bangladesh's current stock of foreign debt is 13.9 percent while the country can borrow up to 40 percent of its gross domestic production – a tolerable level called by the International Monetary Fund.
The stock of the country's outstanding debt is now 54.1 percent while any country can borrow 1.5 times higher than its total export earnings and remittance.
In the meantime, Bangladesh spent 13.4 percent of its revenue collection to pay for the external debt service in the last fiscal year. However, the tolerable level is 30 percent.
The ERD report said the tolerable limit for external debt service is 20 percent of the total export and remittance which currently stands at 5.1 percent.
Sources at the ERD said all the development partners disbursed $1433.7 million till October of this fiscal year, including a grant of $101.16 million and loan of $1332.55 million.
The year-on-year total was $1446.75 million, with a grant of $62.86 million and a loan of $1283.89 million.
The country spent $631.20 million to repay the foreign debt in the current fiscal year while the year-on-year amount was $524.27million.
The ERD report said the net assistance decreased by 14 percent in the first four months of this current fiscal year as the disbursement dropped and cost of debt service rose.
The net disbursement in the first four months of this fiscal year was $970.43 million, which was $1054.38 million in the same period of the last fiscal year.
In the meantime, concern grows as the number of foreign loan agreements, which could boost the disbursement, is not encouraging.
The ERD said new loan agreements of around $2222 million remained stuck till October. The year-on-year figure was $3611.13million.
The ERD officials said the first year of a loan agreement usually sees 10-15 percent disbursement. The rate slightly drops in the next two years. If the project implementation gets momentum in the third year, the disbursement rate also witnesses positive output.
The ERD links the slow implementation of development projects with the slow rate of disbursement of foreign aid, in a report published recently.
The ERD report said, aid utilisation is at a critical juncture and the situation arises from the slow implementation of projects, causing extra time and cost. It is also negatively impacting the balance of payments, leading to increased borrowing from domestic sources.
"Barriers the speedy implementation of projects or utilisation of economic assistance are manifold," the report said, while also pointing out projects are often designed without proper planning or feasibility studies.
"People engaged in the project preparation are not properly trained. And that is why the faulty design of the projects leads to revisions of the project proposals," the report elaborated.
Also, the report blamed the faulty procurement process, problems in land acquisition.
Delay in approval of awarding contracts, appointing consultants, releasing fund and lack of coordination among cofinancers were also identified to be the causes of slow disbursement.