Borrowing more from external sources

External assistance is a pressing need for a low-income country like Bangladesh to carry out its development activities. The surplus it generates after meeting its annual recurring expenditures is not enough to support development budgets, which, according to many, are deliberately kept low because of the resource constraints. Since the day one from its emergence as an independent country in 1971, Bangladesh has been receiving foreign assistance. Initially, the volume of aid, both bilateral and multilateral, was low. But later it started increasing, more in the nature of concessional loans than that of grants, with a built-in trend about fluctuations in its flow.  

However, with the rise in the volume of domestic resources and the reluctance of the donors to commit more aid because of their own fiscal constraints, the share of external aid in financing development projects has shrunk over the last two and a half decades. The foreign loans and grants that the government receives to support its development budgets has been around 2.0 per cent of the gross domestic product (GDP) in recent years. The domestic revenue surplus and the average volume of external aid flow together are not enough to finance the country's development needs and poverty alleviation.

Under the circumstances, the government, according to a report published in this paper last Saturday (April 26), is exploring options to beef up the flow of external assistance, up to at least 3.0 per cent of the GDP, to help build the necessary infrastructural facilities and reduce poverty. However, the officials concerned have, quite justifiably, decided to analyse the possible impact of higher borrowing on the overall debt management of the government. The intention relating to higher external borrowing would surely trigger a few questions that the policymakers need to respond to, before taking any decision on the issue.

The first and foremost question that would agitate the minds of the development practitioners both at home and abroad is about the capacity of the government agencies to use the loans and grants made available to the country. The accumulation of more than $13 billion in the aid pipeline does illustrate the incapacity of the public sector agencies to use aid money. The government can easily blame the donors for asking too many questions or for making the disbursement of aid too lengthy a process. But with this kind of allegation it can hardly cover up its own weaknesses as far as implementation of development projects is concerned. The state of implementation of the annual development programme (ADP) for the current fiscal is a glaring example; government agencies could spend only 43 per cent of the development budget in the first nine months of the fiscal.

Both bilateral and multilateral donors are unlikely to feel encouraged to lend out more soft loans to Bangladesh under the prevailing circumstances. The government might feel like going for hard-term loans or suppliers' credit for the sake of 'development' in such a situation. But such a move might prove risky in the long run. The government may not be in a comfortable state in the coming months as far as the external debt-management is concerned. The balance of payments (BoP) situation indicates such a possibility.