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What does a middle-income status mean for development funding?

  • Published at 12:01 am October 8th, 2017
  • Last updated at 06:51 pm October 9th, 2017

Now that Bangladesh has been classified as a middle income country, we no longer qualify for soft loans or development grants. In the coming year the size of soft loans at lower interest rates will shrink and we will have to start borrowing at a commercial rate from development partners. Renowned Economist and the Executive Director of the Institute for Inclusive Finance and Development (InM) Dr Mustafa K Mujeri spoke to the Dhaka Tribune about the future of Bangladesh’s development funding as a middle income country and what we should be focusing on for the fututre. He has an an illustrious career in the field including being the director general of the Bangladesh Institute of Development Studies and the chief economist of the Bangladesh Bank.

Why have foreign funds been in decline over the years ?

Foreign funds have been decling at $1.5 billion a year in the last few years. We have started to borrow commercial loans from development partners as Bangladesh has been classifed as the lower-middle country by the World Bank. This new status also made our development partners reduce the amount of soft loans they give us because those are meant for low income countries. The Public Procurement Rules 2008 has also been blamed for a fall in foreign assistance. The government may take the matter into account seriously to help the ministries, directorates and divisions get rid of the problems that arise while disbursing foreign funds, due to such rules or policies. A total of $36 billion foreign aid is now in the offing.

Is there any specific international policy that only facilitates poor countries?

Yes, and the maximum number of global soft loan goes to the poor countries in Africa. Moreover, Bangladesh will be witnessing a fall not only in soft loans, but also in the loans with low interest rate in next few years.

Do development parners give funding with economic interests in mind?

Of course, they do. For example India, China and Russia did not support Bangladesh over the Rohingya issue. Because both India and China have economic interests in Myanmar such as the construction of seaports there. Meantime, Japan’s loans for development projects, mainly for the construction of regional roads and highway was done to increase Japan’s volume of car exports into our country. Hence, economic  interests outweigh humanitarian concerns.

The country has been seeing a lot of investment in different sectors but many people are still unsure of where to invest. What do you think are the best investment options in Bangladesh?

Keeping in mind that has been a smooth flow of capital in the country, we have to ensure a good envoirnment for business and investment. However, most of the studies indicate that the business envorinment in Bangladesh is unsatisfactory  caused by rampant corruption in almost every sector. So, I suggest the government make more anti-graft organisations like the Anti-Corruption Commission to check for anomalies.

Are development project undertaken with foreign funds no longer viable?

Foreign assistance-based projects usually are not viable due to the conditions set by the donor agencies or countries to procure equipment and services from them. For instance, The government signed a $4.5 billion Line of Credit (LoC) agreement with India on October 4 which will help implement 17 projects. According to the deal, Bangladesh will have to procure 75% goods necessary for the projects from India, instead of floating an international tender. Similar conditions are also imposed by China.

Does foreign aid always help the poor?

Foreign aid has enlarged government bureaucracies, perpetuated bad governance, enriched the elite in the poor country or has just been wasted. There are a number of underlying causes behind this, such as aid dependency, bad economic management of the recipient countries, corruption and poor coordination and cooperation among aid agencies etc.

It has been alleged that  ministries and divisions are mismanaging money for projects funded by the government. How does this happen?

Many ministries and divisions are easily mismanaging 100% of the money meant for focally funded development projects taking the advantage of some simple conditions set by the government. As a result, officials of the ministries and divisions are said to be linked to corruption while using the funds. But it is not that easy when in comes to foreign aid. For example, nobody can diliberately mismanage funds provided by the Asian Development Bank for its tough procurement policy and terms of conditions.

How do you think the near future will affect how countries adapt to new technology?

Our economic progress will greatly depend on how we master the skills of the next generation technologies and how successfully we apply them. So, we have to focus adpating to new technologies, increasing our interest, creativity and skills. In addition, we are now benefiting from a younger demographic with most of the working people being between the ages of 25 to 45.

Why is  the annual  disbursement  of foreign aid so low ?

Foreign aid disbursement is low because of the ministries and divisions are unable to meet the development partners’ condition after their pledge to give foreign aid for development projects.

How do we meet the gap of our negotiation capacity?

Since we have a lack in negotiation capacity, we do not get the maximum amount of benefit from the foreign assistance. We need to enhance our negotiation skills. Negotiation is kind of an art.

Is Bangladesh going to enter a commercial loan era? 

Yes, we are heading towards the commercial capital era. Considering the fact, we need good negotiators who can bring maximum benefit from the commercial loans.
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