Foreign aid release hits $10b for first time

The release of foreign aid has reached a record $10 billion in FY22, thanks to fast utilisation of external loans in some megaprojects nearing completion, more budget support from development lenders and funds for Covid-19 vaccines. 

In the last fiscal year, Bangladesh posted a 26% year-on-year growth in having foreign funds disbursed.  The aid released in FY21 amounted to $7.95 billion, according to the latest report of the Economic Relations Division (ERD). 

Budget support and vaccine purchases account for around $3 billion of the external funds released in the last fiscal year. The rest of the assistance was spent on different development projects, said the report. 

In FY21, Bangladesh received $1.09 billion in budget support from development lenders.

Infograph: TBS

ERD officials said the foreign funds released in the last fiscal year helped a lot in propping up dwindling forex reserves. 

Former Director General of Bangladesh Institute of Development Studies (BIDS) Dr Mustafa K Mujeri told The Business Standard that in post-pandemic times, the implementation of foreign-funded projects were speeded up, which led to a rise in disbursements of foreign funds.

The government is also getting a good amount of budget support to meet deficits, he said, adding that availability of such low-interest loans has somewhat taken the pressure off bank borrowing. 

Meanwhile, in the last fiscal year, the Asian Development Bank and Japan released the most funds. The country received $2.6 billion from ADB and $2.2 billion from Japan.

The assistance released from the World Bank stood at $1.7 billion. Besides, the disbursal from Russia and China amounted to $1.2 billion and $1 billion respectively. 

But new commitments of loans from development partners in FY22 have dropped by 13% to $8.2 billion from $9.4 billion a year ago, according to the ERD report.

The World Bank, ADB and Japan have made commitments of over $1.5 billion each, while China has pledged to provide Bangladesh over $1 billion.

According to ERD data, foreign aid to the tune of $48.5 billion has remained in the pipeline after the end of FY22. At the beginning of the fiscal year, the amount in the pipeline stood at $50.34 billion.

In the meantime, Bangladesh repaid principal plus interest amounting to around $2 billion in the last fiscal year to the development lenders. In FY21, the repayments stood at $1.9 billion.

As the grace periods of external loans for various development projects have ended, the repayment pressure of principal is growing.

Dr Mustafa Mujeri said as many foreign-funded projects are nearing completion, debt repayment pressure will go up in the next few years. So the government has to adopt more strategies to increase flexible external loans. 

He suggests speeding up project implementation to increase disbursements of foreign aid now stuck in the pipeline.

He also said exports and remittances should be given importance to reduce dependence on foreign debts in the future.