How much foreign aid do we need?

It is soothing to know that the foreign aid disbursements to Bangladesh grew by above 39 per cent to $3.09 billion during the first five months of the current FY when compared year-on-year, thanks to a number of large infrastructure projects getting investments from several bilateral and multilateral lenders.

While the growth report is encouraging compared to the same period last year, it is however noteworthy that the released aid still lags behind the government’s yearly target of around $9 billion to finance the budget deficit for the current 2021-2022 Fiscal Year.

A news report published in this daily on Tuesday states that Bangladesh received $3.09 billion in foreign aid from its development partners in this fiscal’s July-November period. During this period, the Asian Development Bank disbursed $1.44 billion, Japan International Cooperation Agency $449 million, China $379 million, Russia $193 million, and World Bank $284 million. Bangladesh had received $2.07 billion in foreign aid in the same period last fiscal year. China is funding Karnaphuli Tunnel and Padma Rail Link among other projects, while Japan is financing the Metro Rail project and Russia the Rooppur Nuclear Power Plant.

In Bangladesh, foreign aid serves to bridge the gap between savings and investments and make up deficits in the balance of payments. Foreign aid is a major means of financing the country’s economic development. Economic literature generally classifies foreign aid into four main types. Firstly, long-term loans are usually repayable by the recipient country in foreign currency over ten or twenty years. Secondly, soft loans are repayable in local currency or in foreign currency but over a much longer period and with very low-interest rates. The softest is the straight grants often given to the less developed countries. The sale of surplus products to a country in return for a payment in the country’s local currency, for example, food aid from the USA under PL-480, is the third type. And finally, the technical assistance given to the developing countries comprises the fourth type of foreign aid.

Bangladesh needs enhanced foreign aid from different available sources, particularly from the multilateral lenders like the WB, ADB, and AIIB as their interest rates are attractive, and repayment periods are longer. The urgency lies behind its potential to grow further on a global scale.

Firstly, the country will no longer remain eligible for low-cost ODA (Official Development Assistance) after its graduation from a least developed country to a developing nation in 2026. Foreign loans involving higher interest rates after graduation will put a dent in overseas debt financing liability for the government. Secondly, implementing the Sustainable Development Goals (SDGs) by 2030 will require a hefty amount of $ 928.48 billion, as estimated by the planning ministry. This is 19.75 per cent of the accumulated GDP under the Seventh Five Year Plan (7FYP) of Bangladesh.

This implies that Bangladesh will have to put effort to mobilise resources for its development from a host of sources such as foreign aid, domestic taxation, private and foreign investment, export and remittances. Delayed project implementation, costs overrun, bureaucratic tangle and corruption must be eliminated to make sure that committed funds from the global lenders are released timely.

According to media reports, a significant part of the foreign funds committed to Bangladesh by different countries and development partners for implementing development projects has got stuck in the pipeline. The amount was $51.60 billion as of June 2021. Until the 2019-20 fiscal year, the size of the pipelined foreign aid was $49 billion, and $2.24 billion more was added to it in the 2020-21 fiscal year.

Global lenders are keen to invest in our major economic infrastructures as the growth outlook of the country is impressive. Export earnings, remittance inflow, and domestic consumers’ demand make lenders secure about getting back their investment in time. Overhauling the development bureaucracy to maximise resource utilisation, and timely project implementation are the fundamental needs the government must ensure to get more external resources to rekindle the current development pace of the local resurgent economy.