Official development assistance (ODA) and foreign aid have been a crucial part of the development effort in Bangladesh since its independence in 1971. Over the years, the reliance on ODAs has decreased from 28.7 percent of net central government expenses in 2004 to 12.145 per cent in 2016 and only decreased further in the following years.
To many, this may point towards a more self-sufficient future and they may be partially right. However, there may be other underlying factors for the under-use of ODA and foreign aid which are not so complimentary.
According to a recent report, approximately Tk4.5 lakh crore in foreign development funds promised by international development partners remains unused, which could have been used to fund projects crucial to Bangladesh's economic development. For context, the self-funded and highly expensive Padma Bridge only cost about Tk30,000 crores to construct.
Bangladesh, still a least-developed country with LDC graduation on the horizon, can barely afford to leave such a large sum of cheap development funds unused. Then, how did these funds accumulate in the first place? What are the underlying factors that led to this mishap and what can be done to get out of this situation?
The Business Standard spoke to Dr Ahsan H Mansur, the Executive Director of the Policy Research Institute of Bangladesh to seek answers to these questions.
Approximately Tk4.5 lakh crore in foreign funds sits idle in the government treasury. Why is this a problem worth addressing?
We have accumulated this problem over many years. The government always thought that it would reduce the rigidity of the funding pipeline. Unfortunately, the rigidity has only increased over the years and the government also has to take responsibility for this.
Let's assume that the government commits to spending $10 billion in a given year. But in reality, they end up using only 60-65 percent of the funds. The same course of action is repeated the following year. Over the years, these unused funds kept accumulating and we eventually ended up with such a high volume of it.
Some of these funds may be disbursed later. But many of these projects date back to 15 to 20 years. While it may be possible to carry funds forward from recent years to ongoing projects, it becomes much more complicated when the projects are already complete or have been cancelled many years ago.
Consequently, government projects are deprived of cheap loans, grants, aid and funding in favour of higher interest loans from other sources, which only increases the burden of government debt.
Bangladesh could have achieved a much higher level of development if these funds were put to proper use. The current amount of unused money is equivalent to approximately three years worth of the annual development budget. We could have undertaken 15 or 16 more mammoth projects like the Padma Bridge.
Unfortunately, none of that has happened.
Why are we unable to process the funds? Are there any systemic problems that need to be addressed?
Firstly, the project directors or the members of the project management boards are often inefficient and fail to disburse the funds in time. Most of them have trouble communicating in English, the primary language of most of the donors and fail to explain the priorities and demands set by the government properly.
Secondly, there seems to be a bias among Bangladeshi project directors against foreign donors, especially those from well-regulated democratic countries such as Japan, France, South Korea, etc. Most foreign donors require certain official documentation as well as audits regarding the usage of their funds.
Instead, our project directors prefer Bangladeshi funding primarily because they understand the procedures and the loopholes in them. Local funding also does not require as much documentation as do its foreign counterparts. So what happens is that we end up using all of our domestic funds while the bulk of the foreign loans or donations is left unused.
Many experts claim that increased accountability is one of the underlying factors behind the reluctance to use foreign funds. How true is this claim?
Whether it is the World Bank, JICA or any other international organisation, they require a certain set of official documents before disbursing funds. They have much stronger oversight and it's much more difficult for domestic discretionary forces to influence their decisions, no matter how powerful they are. So, it's difficult to pursue unfair means when it comes to foreign funds, making domestic administrators reluctant in using them unless absolutely necessary.
There are issues with the domestic tendering process as well. When international organisations like the World Bank, IMF or JICA disburse funds, they follow the global tendering process. Although the candidates coming from this process are usually the most competent and cost-efficient alternative, bureaucratic red tapes and corruption stand in the way.
Let me tell you about a particular case. A French Company once won the tender of a project funded by the World Bank in Bangladesh. Although they were competent and the most cost-efficient option available, a certain minister blocked the entire project because his preferred candidate did not win. Later, the project was re-tendered. This time, the French company did not even participate in it. Instead, a Vietnamese company got the tender allegedly after bribing the ones responsible. Interestingly, the project remains incomplete to this day.
Such irregularity and corruption in the tendering and procurement process is a major problem in Bangladesh and one of the primary reasons why so much funds remain unused.
How can we ensure accountability in the procurement process given the corruption in project management?
I don't know. Corruption is not exclusive to development projects only. It's ubiquitous and has penetrated every public institution. Bureaucrats hold too much power in the process and they often make outlandish demands like expensive cars, foreign travels, etc, simply to green-light the projects. In a way, foreign companies are held hostage at the hands of these bureaucrats.
Unless the institutions are transparent and have a robust accountability framework in place, there is not much to be done. For instance, if you look at the companies registered in the Western developed economies, it is far more difficult for them to participate in any form of corrupt dealings. Because if found guilty, they often face severe punishments. For instance, the SNC-Lavalin Group was blacklisted by the World Bank and was banned for 10 years from doing any business.
On the flip side, companies from developing countries like China, India, Vietnam, etc, are more comfortable with bribery and other questionable arrangements. Institutions and governments in those countries are also somewhat reluctant to address these issues. This is why our bureaucrats prefer to work with these companies instead of more efficient ones from the West.
Given the erosion of preferential treatments after LDC graduation, foreign direct investment will be crucial for economic development. Can the precedence of corruption in the disbursement of foreign funds affect the flow of foreign investment?
Before investing in any country, foreign investors usually consult with companies with experience of working in said country. When asked about Bangladesh, they will probably hear about the inefficiencies, bureaucratic red tapes, tax burden and institutional corruption.
Let me tell you one such story. During the Covid-19 pandemic, Grameenphone wanted to pay their annual taxes in advance but the NBR refused to take it. Later, because of Covid lockdowns, Grameenphone (GP) failed to pay the taxes in time and were fined by the NBR, even though they wanted to pay the taxes beforehand. Earlier in 2019, when the BTRC fined them, GP wanted to go for arbitration [a process where a mediator helps parties reach an agreement without having to go to court]. The government told them there was no such opportunity. Now if you don't allow companies the opportunities to arbitrate, will they feel secure to do business in your country?
We had already won hundreds of thousands of kilometres in a sea border dispute with Myanmar. So it made no sense to refuse GP the opportunity for international arbitration.
But Grameenphone is not a fringe case. Just take a look at the South Korean EPZ in Ashulia. They bought the land in 1998. To this day, the land registration department has not allowed mutation of the land. And without mutation, they cannot transfer the ownership of the land to anyone.
Unfortunately, foreign investors are taking note of these incidents and will be thoroughly discouraged to invest their resources in Bangladesh. The Prime Minister wants FDIs and so do her advisers. But as it appears, the bureaucrats, especially the mid-level ones, will not allow the efficient utilisation of foreign development funds.