Govt tightens rules on foreign borrowing to boost project efficiency

The government has tightened its grip on foreign borrowing by introducing a set of preconditions that ministries and divisions must fulfil before signing loan agreements with development partners, an effort aimed at improving project efficiency and curbing chronic delays and cost overruns.

The Economic Relations Division (ERD) issued a circular recently outlining the new requirements, which come in response to ministries' underwhelming performance in utilising committed foreign aid.

Despite starting the current fiscal year with a $42.85 billion aid pipeline, ministries and divisions spent only 13.57 percent of the project-related portion of foreign assistance, show ERD data.

In FY2023-24, Bangladesh received $8.57 billion in total foreign aid disbursements. Of this, just $5.42 billion or 13.57 percent—was used for project financing. The remainder was allocated to budget support.

To address these inefficiencies, the ERD's circular mandates that project proposals whether Development Project Proposals (DPPs) or Technical Assistance Project Proposals (TAPPs) must receive prior approval from the competent authority, in line with Planning Commission procedures.

Additionally, ministries must appoint the project director and key staff, complete necessary land acquisition, and submit a resettlement action plan for affected persons.

Cost estimates and draft bidding documents must also be prepared, and, where applicable, the procurement process must be completed up to the contract award stage.

The circular further stipulates that ministries must obtain concurrence from the Finance Division on the Subsidiary Loan Agreement (SLA), ensuring alignment with the main loan agreement negotiated with the development partner.

A clear, time-bound arrangement must also be in place with utility service providers for relocating infrastructure tied to the project.

The ERD emphasised the need for a proactive approach from ministries and their implementing agencies, starting from the project concept stage and the preparation of the Preliminary Development Project Proposal (PDPP).

The directive applies to all ongoing and pipeline projects currently at various stages of processing.