The Financial Express

Bangladesh's foreign aid dependency set to increase

| Updated: June 08, 2021 10:33:39

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Analysts have forecast increased reliance on foreign aid as the government targets 2.9-per cent external assistance of the gross domestic product (GDP) to minimise deficit.

The dependency mooted for fiscal year (FY) 2021-22 has jumped by 0.6 percentage point from the estimate of the foreign debt-GDP ratio of 2.3 per cent in FY 2020-21.

According to experts, mobilisation of this huge external resources can be a big challenge for the government, resulting in a possibility of additional pressure on the local banking system.

Finance minister AHM Mustafa Kamal announced a Tk 6.03-trillion national budget for FY22 where he proposed Tk 2.14-trillion deficit, which is 6.2 per cent of GDP.

Of the deficit, he has set a target to mobilise Tk 1.12 trillion ($13.27 billion) from foreign aid, more than half of the total deficit.

The remaining Tk 1.11 trillion will be funded from internal borrowing from commercial banks, savings

certificates and government bonds.

In FY21, the revised foreign debt target was fixed at Tk 809.54 billion, which was 2.3 per cent of the GDP.

In the revised budget, Mr Kamal had estimated total borrowing from internal and external sources at Tk 1.87 trillion, which was 6.1 per cent of the GDP.

In FY20, the foreign debt-GDP ratio in the budget was only 1.6 per cent.

When asked, noted economist Dr Mirza Azizul Islam said mobilisation of the higher foreign aid target proposed in the budget would be a big hurdle.

"Bangladesh's debt-GDP ratio is still on a comfortable zone. Nearly $50-billion foreign aid is unutilised… So, the government can borrow more foreign assistance from external sources which are less costly."

But the problem is the utilisation capacity of ministries and agencies which may hamper the fulfilment target in the proposed budget, according to the former finance and planning adviser to a caretaker government.

From July 2020 to April 2021, foreign development partners disbursed $4.82-billion assistance to Bangladesh, disclosed the economic relations division.

In FY20, they released $9.33 billion, it revealed.

Prof Dr Selim Raihan, who teaches economics at Dhaka University, thinks such a big jump on foreign aid in the budget can be a big challenge.

Past experience does not show any good sign of budget implementation as the capacity of government agencies is very weak, he says.

"If the government fails to mobilise Tk 1.12 trillion from external sources," Dr Raihan said, "its borrowing will be shifted to local sources, thus creating further pressure on the macro-economy."

When asked, minister Mr Kamal told the FE during a post-budget press briefing on Friday that he did not see any problem on foreign borrowing.

"Our revenue generation, foreign trade, remittance have risen. Our economy is on a solid footing. So, I don't see any challenge of financing the deficit budget even from foreign assistance."

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