Foreign aid-laden Tk 3.0 trillion development budget likely

A foreign-aid laden annual development budget of Tk 3.0 trillion in size is forthcoming as the new government has proposed 53-percent hike in project assistance for bankrolling its recipe,
Officials say for the first time in two decades that such foreign loan-dependent development programme is being framed, now that the time of tightfisted of interim era is over.
Considering external and internal economic shocks, the past interim government slashed the project aid for consecutive two years for reducing dependence on foreign loan, but this government overturns that policy, they say.
The project-aid target, mainly foreign loans, in the upcoming Annual Development Programme, accompanying the national budget, has been proposed at Tk 380 billion that is 53-percent higher than that in the revised ADP of the outgoing fiscal year FY2025-26, Ministry of Finance (MoF) and Planning Commission (PC) officials said Tuesday.
The PC has already finalised the Tk 3.0 trillion ADP for the next fiscal year (FY2027) with Tk 1.10 trillion targeted as project aid, to be borrowed from external sources. The remaining funds worth Tk 1.90 trillion will come from internal resources.
In the current fiscal's Tk 2.0-trillion ADP, the government allocated Tk 720 billion worth of PA, mostly come from foreign loans, while the remaining Tk 1.28 trillion is being provided from state coffers, usually mobilised from revenue income.
According to an FE analysis, Bangladesh government's highest growth in project-loan allocation in the ADP was in FY2016-17 as Bangladesh started the Rooppur nuclear power plant and metro-rail construction works.
Meanwhile, in the last FY2025, foreign debt, including interest and principal, was repaid with Tk 500 billion -- the highest ever.
In the current FY2026, foreign-debt service cost Tk 430.61 billion during the first 9 months (July to March).
This foreign debt-repayment rate is 10-percent higher over the same period of the last fiscal year. The repayment rate has reached a point where it is more than the amount of loan received from development partners every month.
The installment repayment of the loan taken from Russia for the Rooppur Nuclear Power Plant will start soon, which will add up to the current debt-servicing obligation. According to the Economic Relations Division (ERD), some Tk 46.36 billion will have to be repaid every year. The time schedule for the repayment of many other big loans would also start within next few years.
Economist Masrur Reaz says the dependency on foreign loan would put further pressure on the repayment amid the lower revenue-income base.
"Following the current domestic and international situation, though the government has no good alternative except for borrowing foreign loans, but their best utilisation would have to be ensured," Dr Masrur notes.
According to a report by the Implementation and Monitoring Department (IMED) of the Ministry of Planning, government dependence on foreign loans and grants had increased in the last five fiscal years. The rate of use of domestic resources has decreased.
Meanwhile, the scope for loans on easy terms is becoming limited as most of the donors going for lending market-based loans. This has created additional pressure on loan repayment.
Some major development partners, including the World Bank, the Asian Development Bank (ADB) and Japan International Cooperation Agency JICA, are gradually making their terms and conditions harder.
Incidentally, currently, almost all of the foreign loans and grants in development projects are mainly loans. Grants are very small.
According to the Economic Relations Department (ERD), 90.67 per cent of the money released from development partners in the last fiscal year 2024-25 came as loans. Only 9.33 per cent were grants.
Officials of ERD and PC have told the FE that the proposed Tk 3.0-trillion ADP with the allocation of Tk 1.10-trillion project aid has been prepared by considering the government's election manifesto, the demands of various ministries, and the progress in the implementation of the ADP during the last 9 months.
The proposed ADP will be presented for approval in the National Economic Council (NEC) meeting soon ahead of presentation in parliament along with the national budget which is forecast to be around Tk 9.0 trillion in size.
Meanwhile, the updated report of IMED shows that 40 per cent of the total allocation for foreign loans had been spent in the last nine months till March.