Foreign aid piles up in pipeline for utilisation failure

Unutilised foreign aid piles up in the pipeline, year on year, as project-implementation capacity of the public agencies in Bangladesh fails to match higher fund release, officials said Monday, indicating a paradox.

A recently published report of the Economic Relations Division (ERD) shows that the confirmed development assistance swelled to US$50.35 billion as of the last fiscal year (FY), 2021-22.

Till the previous FY2021, the unutilised funds in the inflow channel were $1.71 billion lower than in the last fiscal at $48.82 billion, according to the ERD data.

The 'Flow of External Resources into Bangladesh' report said the aid was getting stuck due mainly to slow implementation of projects.

Economists say lack of accountability of the project-implementing agencies and those involved in facilitating is to blame for the aid buildup in pipeline.

"Although the disbursement growth was higher in the last fiscal year, the aid utilisation from the pipeline has yet to get on a higher trajectory as the agencies failed to use the confirmed external resources," said a senior ERD official.

He said different bilateral and multilateral development partners, including the World Bank, the Asian Development Bank, Japan, AIIB, and China, had confirmed the loans over the years.

Overseas development assistance (ODA) is usually confirmed by the development partners for specific projects and programmes in Bangladesh through signing loan or grant deals. Then they release the funds against the development works undertaken by government agencies.

According to the ERD reckonings, the foreign-aid disbursement during FY2022 as a percentage of pipeline-opening balance was 21.79 per cent. In FY 2020-21, the disbursement percentage increased by 5.5 percent over the last financial year.

On July 1, 2021 of the FY2022, the pipeline opening was with $50.35 billion in stock. During July 2021-to-June 2022 period, fresh aid commitment was worth $10.17 billion and total disbursement during the period was $10.97 billion.

The closing pipeline, as of 30th June 2022, accounted for about US$ 45.17 billion after cancellation/adjustment, which is 10.28-percent lower than that of the previous year, the ERD data showed.

The ERD report 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. Factors creating difficulties in speedy implementation of projects or utilisation of economic assistance are manifold."

The ERD in its report focused on fault-lines on the execution side. "Projects are often designed without proper planning or feasibility study. Also, people engaged in the project preparation are not properly trained. In many cases, fault results in slow disbursement of aid, which leads to time and cost overruns even before the commencement of the project."

Executive Director of the Policy Resource Institute (PRI) Dr Ahsan H Mansur thinks government's reluctance in making those involved with projects accountable is prompting the growth of unutilised aid.

"It is interesting that the government has been cutting the project aid (foreign aid) every year in the revised budget. It never asks the project directors or public agencies to account for their failure in utilising the confirmed assistance.

"I think if the government does not bring those people under accountability or ensures reward or punishment for the foreign-aid utilisation, the pipeline size within next few years will touch $100 billion," Dr Mansur, who had once worked with the IMF, said about what may turn out to be a paradox like foreign-exchange crunch and abundance near hand.

[email protected]