Govt may increase aid utilisation target by 40pc

The government is looking to bump up its foreign aid utilisation by about 40 percent in fiscal 2015-16 over current year as it looks to reduce reliance on high-cost domestic borrowing to fund the budget deficit.

Finance Minister AMA Muhith is aiming to disburse Tk 30,134 crore, or $3.92 billion, from development partners -- optimistic given that the government has always missed its target.

In the first ten months of the current fiscal year, $2.38 billion were disbursed against the full year target of $3 billion.

Inefficiency, excessive bureaucracy and abrupt changes in project directors are blamed for the historically low levels of foreign aid utilisation despite the availability of funds.

Subsequently, the government is forced to borrow funds from domestic sources at 7 to 8 percent interest in contrast to 1 to 2 percent rate for donors' funds. Furthermore, the excessive domestic borrowing by the government crowds out private sector investment.

“If we can increase spending from the piled-up foreign aid, we will be able to reduce reliance on domestic borrowing to a large extent,” Muhith said during his budget speech yesterday.

A record $20 billion of foreign aid has piled up due to the government's failure to utilise the low-cost resources timely.