Thursday, 30 March, 2023

Foreign aid pipeline reaches $50bn

Foreign aid pipeline reaches $50bn

Bangladesh's foreign aid pipeline has reached nearly $50 billion amid a global economic crisis that has caused a slump in the taka's value and high inflation.

The aid pipeline is made up of loans and grants to different development projects, as well as budget support commitments from development partners.

Currently, the aid pipeline is much larger than the country's current foreign exchange reserve of $32.5 billion, which is dwarfed by the high import bills due to global energy, food, fertiliser and industrial input price hikes caused by the Russia-Ukraine war.

The Economic Relations Division (ERD) negotiates project loans and grants with development partners, resulting in fund commitments, which are released gradually as the projects progress.

As ERD officials explained, most of the time project funds are released in a timely manner. However, sometimes lengthy project implementation, irregularities in project implementation, and different loan conditions hamper fund release and cause aid pipelines to grow.

Unreleased funds are called aid pipelines. Compared with the $48 billion pipeline at the end of June last year, the country's balance of payments was $5.67 billion in negative territory in the first five months of this fiscal year, with an $11.79 billion trade deficit.

The taka lost its value against the greenback after large mismatches between imports and exports. The central bank's foreign exchange reserves are also rapidly depleting due to the dollar crisis.

"Development partners' committed funds may not be released timely due to project management issues. If the project is not implemented, there is no scope for fund release," said former World Bank economist Dr Zahid Hussain.

If the projects against which funds are committed aren't executed on time, the pipeline grows. The pipeline currently stands at $49.35 billion, and analysts and ERD officials predict that it will grow further in the coming days as ADP implementation rates fell to a seven-year low up until November.

With a committed fund of $3.7 billion, the World Bank has the highest commitment in the pipeline, followed by the Asian Development Bank with $1.1 billion. In total, $12.38 billion is expected to be released in the current fiscal year.

Planning Minister MA Mannan thinks that the funds stuck in the pipeline should be released fast.

“Foreign funds are mobilized by the finance ministry, but the projects are implemented by the concerned ministries or divisions,” he said, adding: “The planning ministry oversees project implementation and we're doing it properly.”

According to the planning minister, development partners are focusing on quality project implementation and the government is cutting costs.

Dr Zahid Hussain emphasized the importance of timely and quality project implementation, which he suggested the government should more closely monitor.

He also recommended that the government intensify its efforts to secure the committed budget support.