Review foreign finance carefully: CPD

Multilateral development finance (MDF) sometimes brings risk for the receiving countries, for which there should be meticulous reviews for facing the challenges, according to experts.

"MDF is undergoing a significant number of challenges due to policy crisis, geopolitical shifts and ongoing global financial architecture reforms," said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).

She was addressing a webinar styled "Launching of the Multilateral Development Finance 2024 Report", jointly organised by the CPD and Organisation for Economic Co-operation and Development (OECD) yesterday.

The report was released globally on September 5.

Multilateral development finance is undergoing challenges due to policy crisis, geopolitical shifts and global financial architecture reforms, said an expert

The OECD data shows that the MDF's share in official development finance has grown from 45 percent in 2012 to 61 percent in 2022, said Fahmida.

With increasing demand, capabilities of the MDF system and multilateral development banks need to be enhanced, she said.

Donors influence and shape the system's priorities through their allocations, bringing risks for the receiving countries, said Abdoulaye Fabregas, economist, architecture and analysis unit, OECD development co-operation directorate, in a presentation.

He suggested prioritising high impact funding mechanisms and emerging donors, safeguarding the system's capacity to support the poorest and ensuring adequate funding for core strategic functions.

Development funds should be designed for the long term, with narrative description for utilisation and outcome, said Sabyasachi Saha, associate professor at think-tank Research and Information System for Developing Countries.

Advanced economies need new investments for major emerging markets, said Rishikesh Ram Bhandary, assistant director, Global Economic Governance Initiative, Boston University Global Development Policy Center.

Increased complexity in dealing with multiple institutions makes it harder for countries, especially those with limited administrative capacity, to manage reporting and evaluation, said Muhammad Asif Iqbal, managing director, Social Policy and Development Centre.

This often leads to delays in project implementation, he said.

Currently, around 75 percent to 80 percent of the official development assistance received by Nepal is in the form of loans, which must be repaid with interest, said Dikshya Singh, programme coordinator, South Asia Watch on Trade, Economics and Environment.

For Bangladesh, as in many developing countries, external borrowing has played a crucial role in financing development projects, said Syed Yusuf Saadat, research fellow, CPD.

However, this reliance on external debt has also introduced significant vulnerabilities to the economy, he said.

In recent years, Bangladesh has accumulated more external debt than in the first few decades following its independence in 1971, raising concerns about the country's debt sustainability, he added.