The government has backpedaled from its utilisation target of pipeline foreign aid as it has proposed only 1.0 per cent higher project assistance (PA) outlay in the upcoming development programme, officials said on Friday.
Although its allocation has increased some 1.07 per cent in taka terms, but it has fallen in USD terms after the higher rate of foreign exchange on the market, they said.
Although the government was supposed to boost its year-on-year PA funds over the last one decade, it suddenly took a cautious approach in allocating foreign aid in the upcoming Annual Development Programme (ADP).
The Economic Relations Division (ERD) has already finalised project-aid or foreign-aid part of the development budget at Tk 940 billion and sent to the Planning Commission for framing the ADP, officials said.
The allocation is only 1.07-percent higher than the Tk 930-billion allocation in the original ADP of the current fiscal year (FY 2022-23).
Economists say it is interesting that when the unutilised foreign aid in the pipeline is ballooning year on year, the government is allocation comparatively lower project-aid funds in the development programme.
It is not only pushing up the unutilised foreign aid in the pipeline but also proving the implementing agencies’ weak capacity of external fund utilisation, they observed.
Till last FY2022, the unutilised foreign aid in the pipeline had built up into a gigantic amount of $45.17 billion, ERD data show.
“We have taken a cautious approach this time. We do not want to make an unrealistic project-aid budget for the upcoming year,” says a senior ERD official on this foreign-aid enigma.
He adds: “As per finance ministry’s instructions, we have taken the cautious steps in allocating money against different foreign aid-supported projects.”
Meanwhile, the government allocated nearly 6.0-percent higher PA in the ADP for the current FY2023 and 25 per cent in the past FY2022.
Over the last one decade, an FE analysis has found, the government had allocated higher funds almost every year except for the Covid-hit year FY2021 when economic activity was virtually stalled.
“Although the economy rebounded from the pandemic impact to normal in the last FY2022, weak PA-allocation growth in the FY2024 is interesting amid the ballooning unutilised foreign aid in the pipeline,” says one economist.
According to official data, the government allocated Tk 718 billion as project aid in the FY2020, 19.66 per cent higher than the Tk 600 billion in the previous FY2019.
When waves of Covid-19 hit the economy, the aid allocation in the ADP for the FY2021 was downsized to Tk 705 billion, a 1.81-percent fall from Tk 718-billion allocation in the previous fiscal.
But when the economy started to recover, the government allocated higher funds worth Tk 880 billion in the following FY2022, like in other normal fiscals, maintaining 24.82-percent growth.
Similarly, the government provided an allocation of Tk930 billion as project aid in the ADP for the current FY2023, which is 5.68-percent higher than the previous one.
An ERD official says slow implementation of projects results in slow disbursement of aid, which leads to time-and cost overruns.
“It negatively impacts the balance of payments, leading to increased borrowing from domestic sources,” he adds.
Distinguished fellow at the Centre for Policy Dialogue (CPD) Prof Mustafizur Rahman thinks foreign-aid release could help in remedying imbalances on the external front of finances.
He says if the government can release more foreign aid from the pipeline against different priority projects, it will help in making the financial account as well as the balance of payments (BoP) positive.
“The government should lay emphasis on utilising the foreign aid in the pipeline for avoiding time-and cost-overrun of the development projects,” he suggests.
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