Foreign aid commitments fall by 85% YOY in July-Oct

Foreign aid commitments decreased by 85% during the July-October period to $413.81 million, down from $2.76 billion in the same period last fiscal year, according to the Economic Relations Division (ERD) data.

Foreign aid disbursement has also decreased due to the lack of spending capacity of government agencies.

The disbursement, which stood at $1.97 billion, was a 25% decrease compared to the same period last year when it was $2.62 billion.

The fall in aid commitments comes as major development partners, apart from the World Bank, have made fewer pledges. ERD sources said.

An ERD official said many government ministries and divisions were yet to submit preliminary development proposals for different projects, which had led to the delay in getting the pledges.

The government has received a $300 million pledge from the World Bank. But among the other major development partners, only $5 million was pledged by Asian Development Bank (ADB) and $3.41 million from Japan.

An ERD official said the World Bank's commitment for the International Development Association (IDA) was still under preparation. The same could be said for the commitments to be made by the ADB, AIB and Japan.

IDA funds are allocated to the recipient countries in relation to their income levels and record of success in managing their economies and their ongoing IDA projects.

The government, however, expects $7.9 billion in probable commitments according to the ERD's yearly borrowing plan.

For disbursement, the government has set a target of $12 billion. Last year, the disbursement stood at $10 billion, which was a record.

Although compared to the first four months of the last fiscal year, disbursement has fallen, the rate of project aid has increased.

Additionally, the budget and vaccine support added to the total disbursement. Bangladesh is yet to get any such support so far this year. 

At the same time, Prime Minister Sheikh Hasina asked the authorities only to spend on priority projects – an austerity effort to cap public expenditure in the wake of the global inflationary spike and growing concern over the slumping international economy.

Japan released the most foreign aid in the first four months of the fiscal year amounting to $580 million followed by China's $457.73 million. Among the other big donors, the World Bank released $365.23 million and the ADB $240.77 million. 

Zahid Hussain, former lead economist of the World Bank Dhaka office, said, "We cannot make a comment on the rate of commitments. Perhaps, there are many projects in the pipeline. The level of commitment also depends on the preparation of the government agencies and divisions."

He said there was nothing to be worried about in this regard. He, however, said the focus should be on increasing disbursement. 

Hussain said attention should be given to the disbursement not in takas, but rather in dollar terms. 

Insiders say the government has paid $724.27 million to developing agencies, including interest and principal amount, in the first four months of the current fiscal year. The amount repaid in the same period last fiscal year was $749.17 million.

Due to the economic crisis, the government is seeking budget support from development partners, which will increase both commitment and disbursement. 

The government's need for budget support stems from the Russia-Ukraine crisis and the economic fallout from that. 

Foreign aid disbursement had also fallen by 24% in the first two months of the FY23. 

Implementing agencies usually go slow when it comes to spending on development projects in the initial months of a fiscal year.