Unused foreign funds hit new high of $23b

The amount of unused foreign aid in the pipeline reached a new high of $22.95 billion in March as the government is slow in utilising the low-cost fund, which accounts for about 40 percent of the development budget.

A finance ministry official said foreign aid commitments rose in recent years but the absorption capacity of ministries and divisions did not improve, leaving a huge stockpile.

The current fiscal year started with $21.71 billion of foreign aid in the pipeline. Till March, development partners promised $3.81 billion, but $2.57 billion was disbursed during the period, leaving another $1.24 billion in the pipeline.

It would be satisfactory if the government can utilise $4 billion in the current fiscal year, as spending 20 percent of the opening fund in a fiscal year is reasonable, an official of the Economic Relations Division (ERD) said.

The government's target was to disburse $4.36 billion in the current fiscal year, but the amount was slashed to $3.66 billion because of the failure of the ministries to use the funds.

At a recent meeting of the National Economic Council, ministries demanded more local funds for annual development programme and refunded foreign money, a planning ministry official said. In the current fiscal year's revised ADP, the government's allocation from own funds has remained the same, but for foreign funds the amount has been cut by about 16 percent, which will decrease further at the end of the fiscal year due to low implementation.

Until fiscal 2009-10, the country received commitments worth $2 billion a year on average, but since fiscal 2011-12, it rose to $5 billion, according to the ERD.

However, disbursement till fiscal 2011 was below $1 billion and from the next year it started increasing and reached $3 billion in the last two fiscal years, but is yet to reach a satisfactory level.

Economists said the implementation capacity constraints of line ministries, problems in land acquisition and politicisation of bidding processes continue to haunt project implementation.

Although the government has given some reasons for the gap, the explanation has been the same over the years, they said.

The reasons include delays in the bidding process, faulty project documentation, unrealistic requisition for fund allocation and holdup in land acquisition.  But development partners blame the mounting unused aid on the delays in appointment of consultants and awarding contracts.

Some 62 percent of the delays were caused by bottlenecks on the government's side and 19 percent due to the development partners; 12 percent were because of both government and development partners, and 7 percent were for reasons such as political unrest, according to an ERD report.

Slow tendering and contract awarding processes jointly caused 26 percent of the delays.

The ERD official said they are preparing a national policy on development cooperation where various initiatives will be taken to increase foreign aid disbursement.

According to the draft policy, there is a significant gap between the commitment and disbursement of external resources in Bangladesh, resulting in inflated funds and lower development results.

It said there are several issues responsible for low disbursement and utilisation. 

The ERD and the respective line ministries should consider realistic government absorption capacity, project readiness, delivery and implementation capacities and evaluate proposals accordingly while negotiating programme or project proposals, according to the policy.

The ERD official said the government has fixed the commitment target at $6 billion for the next fiscal year, while the disbursement target has been set at $5.15 billion. The government disbursed $3.01 billion last fiscal year, up from $3 billion a year ago.


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