A huge amount of foreign aid has piled up in recent times, due to higher commitments by development partners but low utilisation of funds by the government.

Over the last three fiscal years, the situation has worsened, much to the government's embarrassment.

Till March 31, the total unused foreign aid in the pipeline was $16.61 billion of which the government could spend only 8.47 percent.

However, the government has identified some reasons behind the situation, and the reasons have been the same over the years.

The causes on the government's part include delays and allegation in bidding process, faulty project documents, unrealistic requisition for fund allocation and delays in land acquisition.

And on the development partners' side, the causes are delayed appointment of consultant and delayed approval to contract awarding.

Traditionally, the unused foreign aid in the pipeline remains between $5 billion and $6 billion.

But from fiscal 2008-09, such amount started to increase, and at the beginning of the current fiscal year the amount crossed $13 billion.

When the country's balance of payments (BoP) remains under heavy pressure due to a dearth of foreign currency, a huge amount of foreign aid has been piling up as the ministries could not spend it.

An official of the Economic Relations Division (ERD) said, usually the disbursement period for the commitment made by the donors against a project is four to five years.

The official said, as a result, if the government can use 20-25 percent of the amount in the opening pipeline every year, it is satisfactory.

In fiscal 2010-11, the disbursement of foreign aid was 19 percent of the amount in the opening pipeline. But, till March of the current fiscal year, only 10 percent of the opening pipeline has been disbursed, according to ERD statistics.

At the beginning of the current fiscal year, the foreign aid in the opening pipeline was $13.86 billion. Till March $1.41 billion was disbursed.

If the ERD projection for disbursement in the entire year is realised, only 15 percent of the opening pipeline would get disbursed.

But the ERD officials said they are not sure about realising the projection at $2.18 billion for the entire fiscal year.

From fiscal 2006 to fiscal 2010, disbursement against opening pipeline was between 21 percent and 27.32 percent.

In the last two decades, the highest disbursement of 27.32 percent was in fiscal 2008 during the immediate past caretaker government.

The ERD official said, in the last two to three years Bangladesh received a handsome commitment of foreign aid. But the absorption capacity of the ministries and divisions did not improve, causing a huge amount of unused foreign aid to pile up.

According to ERD statistics, before fiscal 2009-10 Bangladesh received commitment worth $2 billion on an average every fiscal year.

But in fiscal 2009-10, the commitment rose to $2.98 billion and in fiscal 2010-11 the total commitment was $5.9 billion.

Till March of the current fiscal year the donors have already committed $4.15 billion. The ERD official said, at the end of June the amount may reach $6 billion.

The ERD in March reviewed 58 slow projects that were running with foreign aid, and identified the causes of delays on both the government and the donors' sides.

The ERD official said they have taken a new move to increase utilisation of foreign aid.

Major multilateral and bilateral donors will hold face-to-face review meetings with the project directors of the ministries and development partners concerned from time to time.

Already, a two-day review meeting was held this month on 34 World Bank projects. The process will continue, the ERD official said.

Adviser to a former caretaker government Mirza Azizul Islam told The Daily Star that project utilisation is delayed due to weaknesses of the public administration. However, he said, if the public administration is not reformed and their capacity not improved, the problem will not go away.

He said it is a long process and any tangible improvement in the next one year is unlikely.

The ERD and donors have taken initiative to speed up the disbursement of foreign aid. In March, the ERD, the line ministries and development partners including the World Bank and Asian Development Bank sat in a review meeting to identify problems in foreign aid utilisation.

The Daily Star/ Bangladesh/ 24-May-2012

Finance Minister AMA Muhith on Saturday identified corruption and lack of proper enforcement of law as the main to ensuring good governance in Bangladesh.

He said reducing corruption is possible through ensuring involvement of people in every spheres of the governance and ensuring accountability and transparency of the government.

The minister was addressing a roundtable meeting on good governance in Dhaka as chief guest.

The Cabinet Division of the government and the Asian Development Bank (ADB) jointly organised the daylong roundtable, which was attended by representatives from India, the Philippines and Korea along with the senior officials from different ministries of the government.

Cabinet Secretary Mohammad Mosharraf Hossain Bhuiyan presided over the meeting, also addressed by Resident Representative of ADB M Teresa Kho.

Muhith pointed out that reducing corruption was possible in every level of the governance through ensuring wider use of the information technology.

Corruption exists in almost every sector in Bangladesh, he said. He termed the police department as the most corrupt body where he said corruption exists in its system, field level and in other areas.

Similarly there is allegation of corruption in land administration, judiciary, tax administration, health and many other sectors, he added.

In Bangladesh about 75 percent cases are related to land disputes and proper land survey system and digitisation of land related data could reduce such legal battles remarkably, he added.

In the function, Teresa Kho said Bangladesh suffers from infrastructural constraints which is the main hurdle to good governance. ADB wants to extend technical support in this regard, she added.

She also suggested bringing a change into the mindset of people who are serving people. She also emphasised on the reconstitution of administration to this effect.

Cabinet Secretary Mosharraf Hossain pointed out what the government has done in last three years to ensure good governance.

The government has formed an independent Anti Corruption Commission, ensured separation of Judiciary from the executive, passed the rights to information act, formed Information Commission and National Human Rights Commission, strengthened Election Commission and also working to enact Consumers’ Rights Protection Act to establish good governance, he added.

Chairman of ACC, Golam Rahman, Chief Information Commissioner, Mohammad Jamir, among others, were also present on the occasion.

The Daily Sun/ Bangladesh/ 20th May 2012

Thirteen out of 29 non-bank financial institutions (NBFIs) have increased their minimum paid-up capital to Tk 1 billion each from Tk 500 million following a central bank directive.

Bangladesh Bank (BB), earlier in July last year, asked the NBFIs to double their minimum paid-up capital or the portion of the authorised stock to Tk 1 billion by June 2012.

The rest of the NBFIs have been working to raise their paid-up capital and meet the target by the 30 June deadline, insiders said.

Only three NBFIs had paid-up capital of Tk 1 billion each in September 2011 while the number was nine at the end of 2011, according to BB data.

The central bank in its directive further asked the NBFIs to issue rights and bonus shares to raise their paid-up capital within the stipulated timeframe.

Asad Khan, chairman of Bangladesh Leasing and Finance Companies Association (BLFCA), told daily sun that most of the firms have already raised their paid-up capital and the country’s non-banking sector would be able to stand on a strong financial footing soon.

Khan, managing director of Prime Finance and Investment Limited, also described the directive to double paid-up capital of NBFIs as a positive approach by the central bank.

The non-bank financial institutions have been increasing their paid-up capital in recent times and currently they have over Tk 24 billion for long-term investment, he said.

The amount can be and needs to be bigger, he added.

BLFCA sources said 16 out of 22 listed NBFIs are yet to fulfill certain conditions to maintain optimum business standards while seven others are considered to be compliant.

Companies who are yet to fulfill the conditions are – Bangladesh Industrial Finance Company Ltd (BIFC), Bangladesh Finance and Investment Company Ltd (BFIC), FAS Finance and Investment Ltd, First Lease Finance and Investment Ltd, GSP Finance Company (Bangladesh) Limited, Islamic Finance and Investment, Midas Financing Ltd, National Housing Finance and Investment Ltd, Phoenix Finance and Investment, Uttara Finance and Investment Ltd, Hajj Finance Company Ltd, Industrial and Infrastructure Development Finance Company (IIDFC), IDCOL Ltd, National Finance, Reliance Finance, Saudi-Bangladesh Industrial and Agricultural Investment Company (SABINCO) and UAE-Bangladesh Investment Company Ltd (UBICO).

Some executives of those firms said they have an option to appeal to the central bank to extend the deadline for raise the paid-up capital to Tk 1 billion.

Hajj Finance Company Ltd has already sought more time from the central bank, BLFCA officials said.

They also expressed the hope that the firms would be able to fulfill the paid-up capital requirement soon since the country’s economic situation is currently considered favourable for the NBFIs.

Prime Finance and Investment Ltd, which currently maintains a paid-up capital of Tk 2.27 billion, has emerged as the biggest capital holder among the private sector NBFIs.

State-run Investment Corporation of Bangladesh (ICB) has Tk 3.38 billion in paid-up capital.

Industrial Promotion and Development Company of Bangladesh Limited (IPDC), IDLC Finance Ltd, Delta Brac Housing Finance Corporation Ltd (DBH), Bay Leasing and Investment Ltd, Premier Leasing and Finance Ltd, Union Capital Ltd, United Leasing Company Ltd, Far-East Finance and Investment Ltd, Lanka Bangla Finance and International Leasing and Financial Services Ltd (ILFSL) have already increased their paid-up capital to Tk 1 billion each.

The Daily Sun/ Bangladesh/ 19th May 2012

Syed Rezwanul Kabir, Managing Director of SMEF, and MIDAS Managing Director Shafiqul Azam, seen signing a loan agreement at SME Foundation office in Dhaka.

SME Foundation has pumped more funds for single-digit financing to small entrepreneurs under its credit wholesaling programme.

Serving the potential SMEs outside the coverage of conventional banking, especially the women, with collateral-free loan at single-digit interest rate is the main focus of the programme, officials said.

The Foundation on Thursday signed a deal with a non-banking financial institution – MIDAS, through which Tk 50 million will be disbursed to potential entrepreneurs.

SMEF managing director Syed Rezwanul Kabir and MIDAS managing director Shafiqul Azam signed the loan agreement on behalf of their respective sides.

Under the agreement, MIDAS will provide SME entrepreneurs with credits at only 9 percent rate, while it gets the money from the SMEF only at four percent rate, officials added.

Earlier, MIDAS received a total of Tk 20 million from SMEF, which was disbursed among 60 beneficiaries in light engineering cluster of Bogra.

Two commercial banks and MIDAS have so far disbursed such loans totaling Tk 67.5 million. The number of total beneficiaries was 161.

“Financing support from conventional banking is not enough for intended growth of SME sector,” Industries Minister Dilip Barua, the chief guest of the event, said.

“SME Foundation is playing a very significant role in providing financing to such risky investments,” the Minister, also the Chairman of SMEF, added.

“We want to put more emphasis on entrepreneurship and discourage trading,” he commented.

“So, we’re trying to identify new SME clusters across the country to support them with single-digit lending,” he added.

Speaking on the occasion, MIDAS chairperson Rokia A Rahman said the loan will be disbursed in agro clusters in Jessore and light engineering clusters of Bogra.

The Daily Sun/ Bangladesh/ 19th May 2012

Finance Minister AMA Muhith speaks at a consultative committee meeting on the national budget 2012-13 at a hotel in Dhaka Thursday.

Finance Minister AMA Muhith on Thursday said the government would continue to allow investment of black money in the stock market throughout the next fiscal.

“There is a provision in the Income Tax Act which allows legalising black money. We are working to make the provision more effective,” Muhith said.

He also said the government would provide incentives to four sectors including skilled labour, maize cultivation, seed production and poultry industry considering their prospects.

The minister was addressing a consultative committee meeting on the national budget 2012-13, jointly organised by the National Board of Revenue (NBR) and Federation of Bangladesh Chambers of Commerce and Industry (FBCCI) at a hotel in the city.

“The existing facilities for the stock market investors will remain the same. Some reformations in the stock market including demutualisation will also be initiated,” Muhith said.

FBCCI President AK Azad earlier opposed the opportunity to legalise black money by paying 10 percent tax. “It will discourage the regular tax payers. If the government decides to allow whitening black money, higher monetary fines should be realised in this process. Otherwise, it will cast negative impact on revenue earning,” AK Azad said.

FBCCI placed a 448-point proposal including 194 points on import tax affairs, 107 on Value Added Tax (VAT) and 147 on income tax affairs for the upcoming national budget at the meeting. While addressing the meeting, the finance minister said though the government intends to promote local industry, it would also keep an eye on imports since the country is unable to fulfill the demands for many goods by its own.

“We are working to create a balanced environment for both the manufacturers and importers by imposing taxes on production, assembling and final products,” Muhith pointed out. He said the government would set a target to lower the inflation to 7.5 percent in the next fiscal from existing 9 percent.

Muhith said they expect the economic growth to be 7.2 percent in the upcoming fiscal, which is 6.7 percent in the current fiscal.

“I think our expectation is not so high considering our growth in the last few years,” he added.

The finance minister expressed his firm hope to start construction of the Padma Bridge within the next fiscal year.

“There is no doubt that the construction of the bridge will be started within the next fiscal. Nothing to worry about financing,” Muhith said. He said the pre-shipment inspection (PSI) system for imported goods will be abolished within the next seven months to make customs activities more convenient for the businessmen. Muhith, however, said the some products would still be scanned under the PSI system.

NBR chairman Dr Nasir Uddin Ahmed presided over the meeting, which was also attended by lawmaker Golam Dastagir Gazi, FBCCI senior vice president Md Jasim Uddin, vice president Mostafa Azad Chowdhury Babu, former president Md Akram Hossain, former senior vice president Abul Kashem, Dhaka Chamber of Commerce and Industries (DCCI) President Asif Ibrahim, BGMEA President Shafiul Islam Mahiuddin and Exporters Association of Bangladesh President Salam Murshedi.

The Daily Sun/ Bangladesh/ 18th May 2012