Development expenditure in Bangladesh is set shoot beyond limits as projects line up for revision following mainly dollar-driven cost overruns as the taka loses value to the costly US currency.
Officials said most of the project-evaluation committee (PEC) meetings at the Planning Commission are getting requests from the project directors for raising costs as dollar price increased nearly 25 per cent over the year.
Citing a few examples a senior Planning Commission official told the FE Tuesday that recently the Industry and Energy Division of the commission held PEC meeting on the Tk 237.36 billion worth of Eastern Refinery Ltd (ERL-2) project.
The finance division agreed to pay Tk 161.42 billion from the Government of Bangladesh (GoB) fund and BPC Tk 71 billion from its own fund for construction of the refinery in one of the megaprojects in the country.
However, the PEC meeting found in the development project proposal (DPP) GoB contribution mentioned as Tk 166.35 billion, up by Tk 4.93 billion.
When asked, a BPC official informed the meeting that the additional cost was estimated in keeping with the dollar-price hike in exchange with the local currency.
Similarly, Northern Electricity Supply Company Limited this month in a PEC meeting on a Tk 10.90-billion project titled ‘Rajshahi Division Electricity Distribution Line and Substation Extension and Rehabilitation’ sought Tk 496.60 million in cost enhancement on the same ground.
Contacted, Abdul Baki, a Member at the Planning Commission, told the FE Tuesday that the cost enhancement from exchange-rate fluctuation is putting additional pressure on government exchequer.
“A big component of most of the project revision is incurred from dollar-price hike,” he says, as reports say the taka weakens for lower-than-optimal foreign-exchange reserves of the country with its domino effect on many counts.
He mentions that when these projects were taken, the exchange rate of the taka against the dollar was Tk 84 to Tk 85. Now dollar price shot up to Tk 106 or above, and may go up further in the days ahead.
“So the project costs are going up by around 30 per cent due to dollar-price hike alone,” Mr Baki said, adding: “The one (dollar) component is hampering project implementation.”
A senior finance official told the FE the planning division have to pay the additional expenditure from its block allocation to the projects which are given permission to spend extra on account of dollar dearth.
In case there is no block allocation, the additional spending has to be adjusted with other projects, he said.
Finance Minister AHM Mustafa Kamal in the ‘Medium Term Macroeconomic Policy Statement 2023-24 to 2025-26’, placed in parliament on June 1, apprehended that taka devaluation may result in significant hike in cost of projects run by the government.
He said many of the government projects, especially the megaprojects, are heavily dependent on imported items.
“Thus, depreciation of exchange rate of taka may result in cost escalation of the projects, creating additional fiscal burden,” said Mr Kamal.
Economists say the costly dollar increases cost imports and thus of production and consumer goods, ultimately fuelling inflation in the economy. In Bangladesh prices are stubbornly high for steep inflation as well as oligopolization of market.
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