$51 billion in foreign aid still stuck in the pipeline

A significant part of the foreign funds committed to Bangladesh by different countries and development partners for implementing development projects has got stuck in the pipeline.

The amount stands at $51.6 billion or Tk 4.34 trillion at the end of fiscal 2020-21, which is almost 72 percent of the current national budget. Until the 2019-20 fiscal year, the size of the foreign grants pipeline was $49 billion and $2.24 billion more was added to it in the 2020-21 fiscal year.

In total, $51.06 billion is still committed as of June 2021, according to the Economic Relations Division, or ERD.

The ERD has been calculating the funds committed by different countries and development partners since fiscal 1971-72. A huge amount committed to Bangladesh as loans and donations to run the development projects, however, has got stuck.

Every year the government signs contracts with its development partners to finance different projects. Once a contract is signed, it is considered a commitment, ERD officials said.  

The major reason for the grants not being released is the failure to implement the projects by a specific deadline.

On average, Bangladesh has signed loan or aid contracts worth $10 billion each year for the past seven years. However, they only managed to release about $5-7 billion a year, an ERD official said.

As the projects are not implemented on time, the government cannot get the targeted amount released in time. Meanwhile the government continues to sign new contracts every year, adding almost $3 billion to $5 billion to the pipeline. This is how the committed amount grows every year.

ERD data shows the government has managed to get a commitment of around $9.35 billion in fiscal 2020-21, but could release only $7.1 billion. This added a new amount of $2.25 billion to the pipeline in the last fiscal year. Similarly, a $9.55 billion finance contract was signed in fiscal 2019-20 with only $7.27 billion of it released. This added $2.28 billion to the pipeline that year.

“The present government took on major infrastructure projects after it came into power, which increased the amount of foreign aid commitment. But as they could not keep pace in releasing the money, the pipeline grew,” said former ERD Secretary Monowar Ahmed.

“In order to ensure the faster release of foreign funds, the ERD decided to increase the implementation speed of the projects financed by foreign donors. It prepared a fast-track project list and began to monitor those projects. Currently, the implementation bodies, ERD and donors hold a tripartite meeting every three months.”

All these initiatives allow authorities to implement the projects faster, leading to further release of foreign funds, he said. In the last two years, more than $7 billion was released per year.  

“The COVID-19 pandemic has affected our ability to implement projects to a certain extent. It’ll be better when the pandemic ebbs.”

The former secretary hoped that larger amounts would be released from the pipeline by then.

“Authorities must speed up the implementation of foreign financed projects if they want to reduce the size of the pipeline,” said Dr Zahid Hussain, former lead economist of the World Bank office in Dhaka.

The government is aware of the obstacles to implementing projects and must work to remove them, he said.

“In particular land acquisition, appointing project directors, speeding up the tender process, and stopping the frequent transfer of important project officials will ensure faster implementation.”

“There may be a disruption in the sector if the large amount of committed funds stuck at the pipeline stage is not released. Therefore, the government should adopt a strategy to speed the implementation and increase the amount of foreign funds in the ADP,” said Ahsan H Mansur, executive director of the Policy Research Institute.

The government has increased the foreign aid amount in the current Tk 2.25 trillion Annual Development Programme, pushing it up to 39 percent. It was 30 percent of the ADP in fiscal 2020-21 and 31 percent in fiscal 2019-20.

“The national budget is drawn following a planned structure and, in particular, it adheres to the five-year-plan,” said Shirajun Noor Chowdhury, joint secretary of the Finance Division. The size of the funds will come down if the allocations in the current structure are used for project implementation properly, he said.