This is how project aid utilisation is gearing up

Ministries and divisions spent more foreign funds in the first quarter of the current fiscal year compared to previous years, reflecting that development works gained some pace amid calls for faster project implementation to avail more external assistance.

The rate of project aid utilisation is high in power and energy projects as the country's electricity and gas crisis kept deepening since the Ukraine war that made the global fuel market volatile.

The Power Division is one of the top performers, utilising over a fifth of Tk2,984 crore project aid allocated for the whole the fiscal year 2022-23 in the July-September period.

It was followed by the Energy and Mineral Resources Division and the railway, which spent 14% and 11% of their foreign fund allocations of Tk142 crore and Tk1,181 crore respectively for the year, according to a report of the government's Implementation Monitoring and Evaluation Division (IMED).

Planning ministry and project officials attribute the improvements in project implementation to the instructions from the highest level of the government to ensure judicious use of foreign funds by prioritising development projects and accelerating their implementation.

Implementing agencies need to be more efficient to expedite project work to pave the way for faster release of external funds committed by development partners at this time of severe need for foreign currency, they said.

The planning ministry will sit with the ministries and divisions that are lagging in project works, they told The Business Standard.

conomic analysts have long been calling for enhanced efficiency of implementing agencies to complete projects without overruns of time and costs as the country's foreign reserve is depleting fast and future repayment burden is growing.

Timely implementation is a prerequisite to disbursement of committed funds and also negotiation for fresh foreign loans, said officials at the Economic Relations Division (ERD), the government's agency that deals with bilateral and multilateral development partners.

They said smooth flow of development funds from external sources is also vital to refill the foreign reserve as on average 30% of project aid, earmarked for local procurement of goods and services, goes straight to the central bank's reserve holdings.  

Gaining pace, but slowly

Usually, project work remains slow in the first quarter and gradually speeds up towards the end of the fiscal year. However, the trend is changing now as fund release is easier than in the past, officials said.

Project aid utilisation was less than 6% of full year's allocation in the July-September period of the 2019-20 fiscal year when the Covid-19 was still unknown to the world. But the rate peaked in the first quarter next year when the pandemic started raging in full force, leading to a series of shutdowns since late March 2020. The utilisation of external assistance for development projects approached 8% in the Q1 of FY21. The rate slowed in the next year's first quarter, but still stayed well over 7% and jumped to 8.63% in the same period of the current FY23, says the IMED report.

The pace shows that development works, mainly those funded with foreign loans, continued amid pandemic. But the trend was not the same for all ministries-- some fared well, spending as high as 20% of the money allocated for the year, others lagged behind, even failing to spend 1% of the allocation, according to project implementation status of ministries or divisions that received Tk1,000 crore or more for the period.

Planning Division Secretary Md Mamun-Al-Rashid told TBS that in the current world situation, the government has given utmost importance to foreign-funded projects. The Prime Minister's Office has repeatedly urged ministries and divisions to increase the use of foreign aid. 

Therefore, the utilisation of foreign aid has now ticked up, he said, adding that they have also decided to meet with those who have not yet been able to increase the utilisation of external funds.

Why some are better than others

It is efficiency and priority that matter as officials of the good performing projects claimed. 

According to ERD officials, foreign aid disbursements rose 25% year-on-year in July-September. Yet, many ministries and divisions are lagging behind in using up such funds owing to a lack of capacity. 

Speaking on the success in utilising foreign loans, Md Nurul Alam, additional secretary (Planning) to the Power Division, said, if project implementation goes on according to work plans there will be no problem to have foreign aid released. 

At present, the implementation of most projects under the Power Division is going on smoothly, he noted, adding that all the tools in the project monitoring system are working properly. 

For example, project implementation and steering committees are regularly holding meetings to identify problems, if any, in the ongoing projects and resolve those immediately, he explained.

He believes that if the project monitoring tools were put in place, project implementation and foreign funding would not be hindered.

Shipping ministry is among those at the bottom of the list.

In the current fiscal year, the shipping ministry has set a target to spend Tk2,875 crore from its portion of foreign aid. In the first three months of FY23, the ministry could use up only Tk60 lakh, which was only 0.02% of the allocation.

The Matarbari Port Development Project is one such project under the shipping ministry, which saw zero progress when it came to utilising its foreign fund amounting to Tk800 in July-September of FY23. This is because the project has not yet reached the stage of spending external aid, said Project Director Mir Zahid. 

However, he expects that they will meet the spending target during the rest of the fiscal year.

This stands in stark contrast with a large power project at the same venue – 1200MW Matarbari Coal-fired Power Plant – which is progressing well and set to be completed by December next year.

The overall first-quarter utilisation of project aid stood at 8.63% of the amount allocated in the Annual Development Programme (ADP) of the current fiscal year. In the three months to September, ministries and divisions could utilise a little over Tk7,942 crore from Tk93,000 crore earmarked for the entire fiscal year. 

The food ministry has spent only 3.57% of its allocation of foreign aid. 

Asked about the reason behind the delay in utilising the fund, Md Khurshid Iqbal Rezvi, additional secretary to the food ministry said, "We have procured some equipment, but have not paid the bill yet. That is why, the spending from the foreign aid part in the first quarter has been shown less. We will adjust it in the second quarter."

The Bridges Division used up only 2.5% of the allocated foreign aid, its officials said they did not need to spend the foreign fund as work on the Dhaka-Ashulia Expressway has not yet started. 

On the other hand, the process to hike costs of the Karnaphuli tunnel project has not been completed yet, leading to a slow progress in spending from the foreign fund, they added. 

However, they hoped that they would need a large amount of foreign aid for this project in the remainder of FY23.

ERD officials say every fiscal year they give various instructions to ministries and divisions to increase the use of foreign aid. They also hold meetings with development partners and implementing agency officials at various times of a fiscal year to identify the ongoing project problems and take necessary measures. 

Even so, foreign aid-backed projects are not making much progress, they add.

A tripartite meeting on 11-12 September in Dhaka by the World Bank, implementing agencies and the Economic Relations Division (ERD) identified a number of project issues, such as slow start, readiness and improper synchronisation between the government and the lender mainly responsible for delaying the disbursement.

Other key implementation issues the meeting identified are complex technical design, complex institutional arrangement for implementation, inadequate project staffing, inconsistency in project details and inadequate ADP allocation availability.

An ADB's document says about two-thirds of the ADB's portfolio are infrastructure projects, which involve a large procurement component. This is why delays in the procurement have adversely impacted the project performance.

The World Bank and the ADB account for 56% of the total foreign aid.

Officials of the implementing agencies say disbursements are sometimes delayed due to bureaucratic tangles on the part of development partners. For example, it takes a lot of time to secure permission from the development partners at various stages, they note. 

Why projects need more pace

At this time of foreign exchange crisis globally, if the allocation of foreign aid for projects is spent properly, it will help to shore up the forex reserves to some extent.

Officials at the ERD, said about 30% of the total foreign aid disbursed is directly added to the reserves. The portion is called reimbursable project aid (RPA).

The foreign aid allocation in the annual development programme for the current fiscal year is Tk93,000 crore. As such, there is a possibility of adding foreign currencies worth about Tk27,900 crore to the reserves.

But the lack of implementation capacity, and bureaucratic complexities of development partners make it impossible to spend foreign aid as expected, officials argued.

AB Mirza Azizul Islam, a former finance adviser to the caretaker government, told TBS that foreign aid cannot be used properly owing to failures in implementing projects in stipulated tenures.

"In the current situation, increasing the allocation of foreign aid will help our reserves somewhat," he said.

Meanwhile, in a meeting with the ERD yesterday, the visiting IMF delegation said $48 billion foreign aid in the pipeline from different development partners should be disbursed as soon as possible for project implementation. This would help to mitigate the dollar crisis to a certain extent.