foreign loan in bangladesh
TRANSCRIPT
Introduction
Although Bangladesh’s economy has made significant strides in recent years, a negative image
of the country persists throughout the world. In the popular imagination, Bangladesh conjures
terms such as poverty, overpopulation, donor aid, natural disaster, political instability, failed
state, and corruption.
Some of these characterizations are accurate; others reflect the country's past, but none gives
Bangladesh credit for the major social, economic, and political improvements that have taken
place in recent years.
The country's poor reputation has been an ongoing problem since independence. Over the past 10
years, however, the situation in Bangladesh has changed, even though world opinion has not. It
will take time to change the world's perceptions of Bangladesh, and meaningful change must be
accomplished through concrete actions, not simply hollow words from government officials.
Bangladesh has been slow to integrate economically with the rest of the world because for most
of its history, the country has been dependent on donor aid. Multilateral and bilateral assistance
to Bangladesh has been much appreciated and generally utilized in an appropriate manner, but
this has lead to a sense of aid dependency that the government now is trying to change. "Trade
not aid" is the new mantra of the Bangladesh government, but the transition will not be easy, and
it certainly will take time to implement both domestically and internationally.
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Dependence on foreign loan
In our country 'begging' has become the main and only means to develop the nation. We propose
loan sanctions for projects in all areas. That should be done carefully. Most of the projects are
designed by the donors or foreigners.
Recently, a project proposal, buying ten million (1.0 crore) of energy saving bulbs, was
submitted to the concerned authorities asking for loan. Now, it seems like even if we need toilets
in Dhaka city, we have to seek loans from the donors!
As we all know, bigwigs get share from donor-aided projects during their implementation, and
this share is the source of black money in our country. There are other ways to get black money,
too. Now we can guess why the government has kept the provision for whitening black money.
Foreign loan burden of the country is increasing markedly. A significant amount of money from
the budget has to be given back to the donors every year
Without taking loan from the donors, we could invest our own money and use them in a proper
way
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Present scenario of foreign loan in Bangladesh
Foreign loan at a glance
Last one year’s loan $603 million
Previous year’s loan $425 million
Year-on-year growth 41%
Loan proposals 32
Last 10 years total loan $2.8 billion
Private companies, mostly from the telecommunication, aviation and power sectors, borrowed
about $603 million in foreign loans during the last one year, marking a 41 percent rise compared
to the previous year.
Board of Investment officials said the scrutiny committee on foreign loans and supplier's credit
headed by Bangladesh Bank (BB) Governor Atiur Rahman has approved 32 foreign loan
proposals worth $603.38 million since August 2009. The amount was $425 million in the same
period of the previous year against 22 such proposals.
The main reason behind the rise is that some telecommunication, power, aviation, garment and
textile companies have gained adequate financial maturity and good credit rating, said a BB
official.
"Foreign banks and financial institutions are now becoming more interested to give loans and
supplier's credit to the companies operating in Bangladesh," said BB Deputy Director Anisur
Rahman who is posted at the BoI.
Rahman said the amount also increased as the central bank has recently allowed some local
banks to manage foreign loans from their offshore branches.
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Foreign investors, mainly different mobile phone and mobile logistics companies, first brought in
foreign loans in the private sector during 2000-2001.
BoI Executive Member Abu Reza Khan said the government does not encourage foreign credit,
but foreign direct investment.
The amount of foreign loans and supplier's credit was comparatively low during the two years of
the last caretaker government.
The private sector received about $2.8 billion of foreign loans and supplier's credit during the
last ten years.
Foreign loans offer the advantage of low interest rate -- less than five percent.
According to the BB guidelines on foreign credit, the effective rate of interest should not exceed
London Interbank Offered Rate (LIBOR) plus four percent.
Effective interest is the sum of the stated annual rate of interest and the annualized fees such as
commitment, syndication, front-end, and project appraisal fees.
The other main conditions for foreign credit in the form of loans and supplier's credit are that the
down payment, if any, in case of the supplier's credit should not exceed 10 percent of the credit
amount, and the repayment period should not be less than seven years.
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Unutilized foreign aid and crisis of fund
The government, apparently, is in the midst of a situation identical to that encountered by the
crew of the major poem, "The Rime of the Ancient Mariner", by English poet Samuel Taylor
Coleridge.
The crew, as the poem narrates, with their ship being stuck in vast and 'motionless' ocean had
'water, water, everywhere, nor any drop to drink. The government, too, has within its reach a vast
reservoir of foreign aid. Yet it is moving heaven and earth to secure some fresh foreign loans.
But, unfortunately, that is not coming by.
The government reportedly is set to reduce the foreign aid inflow target by nearly $1.0 billion to
$2.08 billion, earmarked in the national budget for the current fiscal (2011-12). Because of
diminishing prospect of its receiving $1.0 billion budgetary support from the World Bank (WB)
and fresh assistance from other multilateral and bilateral donors, the economic relations division
(ERD) has thought it prudent to trim the foreign aid inflow target and inform the finance ministry
about it. The WB had earlier indicated the availability of the budgetary support of $1.0 billion
over a period of three years, starting from the current fiscal.
"Since the WB earlier had assured us of making available $1.0 billion budgetary support credit to
help reduce the budget deficit, we expected at least $300 million this fiscal. But the prospect of
getting the credit seems quite uncertain now. So, we are left with no choice but to trim the
external assistance projection for the current fiscal", an ERD official told the Financial Express
late last week.
In fact, the government is not supposed to worry much about the budgetary support from the
donors when it has a bulging pipeline of project aid worth over $13 billion.
The aid money starts flowing automatically once the government starts implementing
development projects against which the donors, including the multilateral ones, have committed
funds.
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But the implementation of development projects is an area where the basic problem lies. The
government agencies involved with development project implementation have been perennially
slow in the utilization of aid, leading to accumulation of project aid to a staggering amount of
$13 billion.
Unfortunately, the slow utilization of project aid under the incumbent government has surpassed
all past records. It is estimated that nearly $5.0 billion worth of unutilized project aid has been
added to the pipeline over the last three years.
The prevailing situation with the implementation of development projects having aid
components is better understood from that of the current fiscal.
The ERD has reportedly trimmed the project aid by Tk. 36.85 billion from the total Tk. 186.85
earmarked for development projects in the annual development programme (ADP) for the
current fiscal as the relevant project implementation agencies of the government have sought
lower amount of funds from the confirmed sources of external assistance.
The rate at which the official agencies are executing development projects allows the ERD little
option other than downsizing the project aid component of the ADP for the current fiscal. The
agencies could spend only Tk. 23.95 billion, about 13 per cent of the project aid allocation made
in the ADP, during the first five months of the current fiscal.
The slow project implementation had resulted in lower disbursement of aid money from the
donors. The government received foreign aid worth $414 million during July-November period
of the current fiscal, $200 million less than the corresponding period of the last fiscal.
But the irony is that the government does now badly need foreign funds not just to help
implementation of development projects but to add some flesh to the country's fast dwindling
forex reserve. Notwithstanding the fact that the development assistance is meant for only
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supporting projects, this time around the external reserves need to be beefed up, at least, to help
stop the erosion of the value of taka vis-à-vis the greenback.
The falling taka has started taking a heavy toll on the economy, in terms of prices of
commodities, essential or otherwise. The inflation is now record high and the situation might go
out of hand if the taka continues to shed its value in the coming months. Speculations are high
the taka might hit three digits in terms of its value against US dollar soon.
Whatever may be the cause--- the liquid fuel guzzling rental power plants are largely blamed for
creating macro-economic management-related woes for the government--- of the ongoing
economic problems, it is the job of the government to fix the same without further delay.
However, expeditious implementation of the donor-funded projects could be one of the effective
ways of attaining that objective.
BB okays $152.8m foreign credit
The scrutiny committee for approval of foreign loan at a meeting Tuesday approved US$152.8
million foreign credit in favour of five projects, a central bank press release said.
Of the total loan approved, $100 million goes to Airtel Bangladesh Limited, $30 million to
Acron Infrastructure Services Ltd, $5.30 million to Confidence Salt Ltd, $15 million to Natore
Agro Ltd and the rest to an apparel sector project.
Bangladesh Bank governor Dr Atiur Rahman presided over the meeting attended by committee
members including representatives of the Prime Minister's Office, Ministry of Finance, Ministry
of Commerce, Ministry of Industries, and Board of Investment.
The highest interest rate for the approved projects is 6-months LIBOR+4.0 per cent per annum,
which is not more than 4.581 per cent.
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The meeting was informed that more foreign financing proposals are in the pipeline for the
committee approval.
This type of foreign financing will be helpful in keeping the foreign exchange rate stable and
impact positively on the balance of payment of the country, the committee hoped.
These foreign investments will help generate a significant number of jobs, they anticipated.
Should we rely on foreign aid or resort to domestic resources?
The governments of developing countries, including Bangladesh or any other country, do not
need to worry if they cannot gain the confidence of the donor countries to receive the desired
amount of foreign assistance. Probably it is better to receive less. Instead, it is more desirable to
formulate effective policies to mobilize resources from the domestic sources. The more we can
rely on domestic resources, the better.
It seems that the governments of almost all the less developed countries (LDCs) set out a target
to receive the highest possible amount of foreign aid, which may be in the form of grants, tied
aid, and loans (soft loan, tied loan, commercial loans, etc.). Expectedly, Bangladesh is not an
exception in this regard, too. Discussions are going on and meetings are being held in connection
of foreign assistance. The efforts of government of Bangladesh are going on in full swing to gain
confidence of the donor countries in order to acquire maximum possible foreign assistance. In
doing so, the governments of LDCs probably have at least two objectives in mind. Firstly,
foreign assistance fills up the resource gap. Secondly, it provides a proof for the creditability and
acceptability of the governments overseas. Thus there appears to have a serious effort on the part
of the government for gaining highest possible foreign funding by achieving confidence of the
donor countries. In this scenario one might ask: is it too bad if the government fails to attract a
sizeable amount of foreign assistance?
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The answer to the above question depends on the response to another question: do we need
foreign aid? Or, is foreign aid desirable? Apparently, this is an old question, but this is a
recurring question, and the issue emerges with new angles. And, there is no straight answer to
this. We should try to address this question from two perspectives: from the perspective of the
aid seekers, and from that of donors. From the aid seekers' point of view, foreign assistance is
justified if it is really to fill up the domestic resource gap (shortage of investible resources)
and/or foreign exchange gap (shortage of foreign exchange) in order to contribute to economic
development and the well being of the people. It is not advisable to shoulder the burden of
foreign assistance merely for political motives devoid of any positive economic agenda.
From the donors' point of view, we need to perceive their motives in extending foreign assistance
to LDCs. In principle, there may be two different motives and objectives for this: (i) assisting the
LDCs in their development, and (ii) satisfying the donors' own political and economic interests.
The former objective is no doubt a noble cause and the LDCs are welcome to receive foreign aid
that arises from such noble objective. The second motive often goes against the interest of the aid
receiving LDCs. But, now, the question arises: what is the motive of donors in reality?
Sometimes it is difficult to appreciate their motive(s) from the receiving end. It is not, however,
difficult for them to perceive what their own motive is. Let us, therefore, see what they have to
say about their own motive in providing foreign assistance. "The biggest single misconception
about the foreign aid programme is that we send money aboard. We don't. Foreign aid consists of
American equipment, raw materials, expert services, and food -- all provided for specific
development projects which we ourselves review and approve... Ninty-three per cent of AID
funds are spent directly in the United States to pay for these things. Just last year some 4,000
American firms in 50 states received $1.3 billion in AID funds for products supplied as part of
the foreign aid programme." [William S Graud, "Foreign Aid: How It Works; Why We Provide
It", Department of State Bulletin 59, No. 1537, 1968].
K Griffin's statement suggests that foreign assistance from the donor countries is not to help the
poor countries or to help fight poverty in LDCs: "In 1981 Israel's GNP per head was nearly 37
times larger than Ethiopia's. Israel received 90 times more foreign capital per head than Ethiopia"
('Doubts about Aid", IDS Bulletin 17, April 1986). Israel was 37 times richer than Ethiopia.
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Obviously, if poverty eradication was the objective, foreign assistance to Ethiopia should have
been 37 times more than Israel, but in practice it received 90 times less than Israel.
An important motive behind foreign assistance is the donor countries' political, diplomatic,
commercial and strategic interests. "... the major motives of aid donors are not to increase
efficiency and growth....... a primary motive is to promote the political, diplomatic, industrial and
commercial interests of the country offering foreign assistance. In practice foreign aid is doing
little to promote growth in the third world and less to alleviate poverty
.
In the end it appears to be doing little more than sustaining corrupt and often vicious regimes in
power." [K. Griffin, "Doubts About Aid", IDS Bulletin 17, April 1986]. "Donor countries give
aid primarily because it is in their political, strategic and/or economic self-interest to do so". [M
P Todaro, Economic Development in the Third World, Longman, New York, 1981]."Britain is
one of the most expert 'tyres' and even boast that two-thirds of her aid never actually leaves
Britain". [New Internationalist, October 1978]. "Canada requires that at least 80 per cent of aid
be spent on Canadian aids and services." [L Timberlake, Africa in Crisis, Earthscan, 1985]. "For
example, the Economic support fund of the US' Agency for International Development is
explicitly intended to provide support to countries on the basis of US's political and security
interests and about 40per cent of all US bilateral aid comes from this Fund." [K Griffin, "Doubts
About Aid", IDS Bulletin 17, April 1986]. "It remains widely agreed that donor countries have
utilized foreign aid largely as a political lever to prop up or underpin 'friendly' political regimes
in the third world countries." [MP Todaro, Economic Development in the Third World,
Longman, New York, 1981].
Thus, foreign assistance is rarely for the benefit of the poor countries. Instead, it may turn up as a
burden for them in the form of debt servicing. LDCs have to submit to the dictates of the donor
countries in international politics, and even in the domestic decision-making. Besides, a large
amount has to be paid every year in interest, not to speak of the principal. "In 1985 the Third
world's repayments of loans and interest amounted to US$30 billion more than the loans it
received in that year.
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In 1986 it received US$14 billion in aid, but it paid out US$54 billion on loan repayments plus
interest. Over the period 1982-1985 it paid back US$106 billion more than it received." [Ted
Trainer, Developed to Death, Green Print, London, 1989.].
These are some analyses of foreign assistance given by the experts of foreign aid from the donor
countries themselves. They do not provide any encouraging picture of foreign aid for assistance;
they are rather gloomy. Although exceptions may not be ruled out, the foreign aid is given
mostly for the self-interest of the donor countries. They establish their control over the poor
countries through foreign aid to interfere in their economic and political policy matters at the
domestic as well as international levels to serve the political and strategic interest of the donor
countries. Foreign assistance tends as well to serve their economic interest at the cost of the poor
aid receiving countries. A major share of the foreign assistance does not leave the donor
countries, or goes back to them for buying expertise services or materials. Debt servicing has
become a serious burden and problem facing the developing countries. So, do we need such
foreign aid? Not really. We don't. And, should we rely on such foreign assistance? No, we
shouldn't. Therefore, the governments of developing countries, including Bangladesh or any
other country, do not need to worry if they cannot gain the confidence of the donor countries to
receive the desired amount of foreign assistance. Probably it is better to receive less. Instead, it is
more desirable to formulate effective policies to mobilize resources from the domestic sources.
The more we can rely on domestic resources, the better. These are some analyses of foreign
assistance given by the experts of foreign aid from the donor countries themselves. They do not
provide any encouraging picture of foreign aid for assistance; they are rather gloomy. Although
exceptions may not be ruled out, the foreign aid is given mostly for the self-interest of the donor
countries. They establish their control over the poor countries through foreign aid to interfere in
their economic and political policy matters at the domestic as well as international levels to serve
the political and strategic interest of the donor countries. Foreign assistance tends as well to serve
their economic interest at the cost of the poor aid receiving countries. A major share of the
foreign assistance does not leave the donor countries, or goes back to them for buying expertise
services or materials. Debt servicing has become a serious burden and problem facing the
developing countries. So, do we need such foreign aid? Not really. We don't. And, should we
rely on such foreign assistance? No, we shouldn't. Therefore, the governments of developing
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countries, including Bangladesh or any other country, do not need to worry if they cannot gain
the confidence of the donor countries to receive the desired amount of foreign assistance.
Probably it is better to receive less. Instead, it is more desirable to formulate effective policies to
mobilize resources from the domestic sources. The more we can rely on domestic resources, the
better.
Bangladesh not dependent on foreign loan: Muhith
Finance Minister AMA Muhith Tuesday said in Parliament that Bangladesh is considered as a
less indebted country and in no way the country is dependent on foreign loan, reports UNB.
Replying to Golam Dastagir Gazi (Awami League-Narayanganj), he said currently, the amount
of foreign loan received by Bangladesh is US$ 22.30 billion, which is 22.3 percent of GDP.
Muhith further said that according to Bangladesh Bureau of Statistics (BBS), the population of
Bangladesh was 14.79 crore and per capita foreign loan was US$ 160 on June 30, 2011.
Since 1972 to December 31, 2011, Bangladesh received foreign assistance of $ 55.18 billion. Of
the amount, $ 31.55 billion was loan and $ 23.63 billion grant, he informed the House.
The Finance Minister said the country will require local investment of 30-35 percent of GDP to
achieve a growth of 7-8 percent or more. But in the present context, it is not possible to make
such huge investment from the internal revenue. In this situation, foreign assistance still plays an
important role, he observed. "Bangladesh needs foreign assistance. However, amount of the
foreign assistance is gradually decreasing according to the statistics of national income,'' Muhith
told the House.
In 1975-76, the amount of foreign aid was 11.17 percent of the national income, in 1979 it came
down to 9.57 percent, while the amount stood at 1.67 percent in 2010-11.
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Medium Term Macroeconomic Framework
Indicator Revised Projection
FY11 FY12 FY13 FY14 FY15 FY16
Export (% change) 38.0 14.5 14.5 14.5 15.0 15.0
Import (% change) 45.0 14.0 14.0 14.5 14.5 15.0
Remittances (blnUSD)
11.5 12.7 14.2 15.9 17.8 20.0
Current Account Balance (% of GDP)
-0.3 -0.2 -0.2 -0.3 -0.4 -0.6
ForexReserve (blnUSD)
10.7 11.6 12.9 14.5 16.1 17.6
Based on the high benchmarks of FY11 ,targets for export and import are set at a lower level
The growth target of Forex Reserve for FY12 (at11.6%) may not be achievable because—Growth in remittance flow may belower & import growth may be higher than anticipated
Medium Term Macroeconomic Framework
Indicator Revised Projection (as % of GDP)
FY11 FY12 FY13 FY14 FY15 FY16
Total Revenue 12.1 13.2 13.4 14.0 14.6 15.2
NBR Tax 9.6 10.2 10.8 11.4 12.0 12.6
Non-NBR Tax 0.4 0.4 0.4 0.4 0.4 0.4
Non-Tax 2.0 2.5 2.2 2.2 2.2 2.2
Total Expenditure 16.5 18.2 18.4 19.0 19.6 20.2
Budget Deficit &Financing 4.4 5.0 5.0 5.0 5.0 5.0
Domestic Financing 3.1 3.0 3.0 3.0 3.0 3.0
Banking System 2.3 2.1 2.2 2.2 2.2 2.2
Non Bank 0.8 0.9 0.8 0.8 0.8 0.8
Net Foreign Financing 1.3 2.0 2.0 2.0 2.0 2.0
Total budget expenditure set at Tk 1,63,589 crore—25.8% higher than RB of FY11, marginally lower than the 24.4% growth target for revenue earnings
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ADP has been targeted at 46,000 crore, accounting for 28.1% of total public expenditure (27.6% in the RB of FY11, 20.9% in FY11 according to CPD projection)
Budgetdeficithasbeenprojectedat5.0%ofGDPforFY12
High foreign financing target (79.8% growth over the revised budget of FY11) has been set with anticipated gross foreign aid flow of USD 3.3 billion
As the revised budget targets (revenue earnings and expenditures) for FY11 has been set on the high side, growth targets for FY12 would be higher when calculated over the actual figures of FY11
Real defining elements in the frame work are: revenue earnings (NBR and non-tax), subsidy and interest payments, ADP and foreign financing of fiscal deficit
Description RBFY11 BFY12 Growth
Crore Tk % of GDP Crore Tk % of GDP FY12 over RB FY11
Revenue Collection 95,187 12.1 118,385 13.2 24.4
Total -Expenditure 130,011 16.5 163,589 18.2 25.8
ADP 35,880 4.6 46,000 5.1 28.2
Non-ADP 94,131 12 117,589 13.1 24.9
Overall Deficit (Excl Grants):
34,824 4.4 45,204 5 29.8
Financing
Foreign Grants 4,224 0.5 4,938 0.5 16.9
Foreign Loan-Net 5,783 0.7 13,058 1.5 125.8
Foreign Loan 10,920 1.4 18,685 2.1 71.1
Amortization 5,137 0.7 5,627 0.6 9.5
Domestic Borrowing 24,817 3.2 27,208 3 9.6
Bank Borrowing (Net)
18,379 2.3 18,957 2.1 3.1
Non-Bank Borrowing (Net)
6,438 0.8 8,251 0.9 28.2
Total Aid Requirement (Net)
10,007 1.3 17,996 2 79.8
Total Aid Req (Net, bln US$)
1.4 - 2.5 - 79.8
Total Aid Req (Gross)
15,144 1.9 23,623 2.6 56
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Total Aid Req (Gross, bln US$)
2.1 - 3.3 - 56
Budget deficit (excl.grants) has been estimated at Tk 45,204 crore (5.0% of the GDP) for FY12
(Tk 34,824 crore in RB of FY 11,4.4% of GDP).
Sources of Deficit Financing
Financing of Budget Deficit in FY12
Share of domestic financing 60.2%
Tk 18,957 crore (69.7%) of the domestic financing will be from the banking system
(74.1% in RB of FY11)
Tk8,251crore(30.3%)willbefromnon-bankinstruments(25.9%inRBofFY11)
Share of foreign financing will be 39.8% in FY11 (28.7% in RB of FY11).
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It is interesting to note that, historically, AL has been dependent on domestic borrowing to
finance the budget deficit, while during BNP regimes foreign aid’s share tended to be higher.
Discouraging aid and loans for sustainable development
Right after our liberation war in 1971, our beloved nation was in tatters. To rebuild the country
we had no option but to seek aid and loans from other nations and international organizations.
Some 39 years have since passed. One would have thought that by this time we could build up
our nation and stop searching for aid.
Unfortunately, the situation is not quite so. We are still seeking aid and loans from donor nations
and agencies. The question is: why are we still seeking loans and do we really need loans and
aid?
To answer the question, let us first try to analyze some information about Bangladesh. The irony
is that Bangladesh is still one of the poorest nations on this planet even though we do have an
annual GDP growth at 6%. A significant number of people still live below the poverty level and
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about 10-20% people remain unemployed in a particular time of the year. The infrastructure that
includes transportation, power and water is still weak. Factories only produce 30-40% of their
capacity due to lack of power supply. Transportation of goods is delayed.
With a population of about 150 million, Bangladesh is probably the most densely populated
nation in the world. Out of 150 million people in the country, only 2.7 million people are
registered as tax payers and out of this 2.7 million people, only 0.7 million people actually pay
tax.
Now, one can argue that Bangladesh needs to seek aid from donor nations and agencies as it is
not able to collect the necessary funds to develop the infrastructure and reduce poverty. Thus,
without foreign aid economic growth will slow down in Bangladesh. Despite all this, I believe
that Bangladesh should stop requesting for foreign aid as soon as possible. There are reasons
why one should oppose dependence on foreign aid and loans.
Foreign aid has made our government short-sighted and lazy. Whenever the government faces a
financial problem it asks help from other nations and international agencies instead of trying to
find out financing solutions being used by other countries. As a nation we are becoming more
dependent on others. We now lack self-confidence that we can do something by ourselves. To
overcome this habit of dependency, we have to stop looking for foreign aid and loans. Our
government has to find creative and innovative solutions to our financial problems and make our
economy more vibrant. In addition, if we use our own money then we will be able to implement
projects that we want instead of projects that others want us to have.
Acquiring foreign loans is not going to be sustainable for our economy. Following the
Brundtland Commission of the United Nations, sustainability can be defined as something that
meets the needs of the present without compromising the ability of future generations to meet
their needs. Borrowing money every year is adding to our national debt. If we continue with this
trend of seeking foreign loans, then the burden of paying back this loan will eventually fall on
our future generation. Thus, a portion of the tax revenues that the future generation will collect
will have to be spent on paying back the loans that we are acquiring right now. Thus, this is not
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economically sustainable because we are compromising the ability of future generations to meet
their needs.
Moreover, when we borrow money from donor countries and agencies, we have to realise that
those countries and agencies are generally interested, first, to work out how providing loans to us
will benefit them before assessing how the loans will benefit us. For this reason, most of the
time, the loans that our government is able to acquire has very strict conditions attached to those,
usually in the form of high interest rates.
This means that we would have to pay back much more than what we actually borrowed. This
demonstrates how the gap between the developing countries and the developed countries is
increasing even though the developing countries are having many development projects.
This is why we should stop seeking foreign loans as early as possible.
Thus, from the above reasons it can be concluded that the main reason why we should not use
foreign loan is because it is not sustainable for our economy; we will never be able to catch up
with the developed countries and we will lack self-confidence and the power to decide what we
want for our country. One can still argue that, it is very important for us to increase our GDP
growth from 6% to at least 9% to become a middle income country and to do that we have to
raise our spending and since we are not able to collect that much tax revenues we have to obtain
foreign aid and loans to finance our budget deficit. While I agree with the first part of the
statement that we have to boost our GDP growth, I completely disagree with the second part of
the statement that we need foreign loans to make big budgets. Now, one can ask where we
should get the extra money to finance our budget deficit.
One can find the ways analyzing some information. About 6.5 million Bangladeshis live and
work abroad mainly in the Middle East, South Asia, Europe and America.
After export earnings, remittance is the second largest contributor of foreign income in
Bangladesh. Last week, the Dhaka stock exchange broke all previous records in terms of
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transaction. Prices of shares have sky-rocketed and prices of shares of companies that do not
even exist increased. This happened because the demand for shares was much higher than the
supply of shares. There is enough fund flow into the market that the government is trying to
implement policies that would discourage people to invest in the stock market.
The government has talked about releasing shares of 27 government owned companies in the
market for quite some time but no progress has been seen as yet in this regard. In addition, even
though there are 2.7 million eligible tax payers in the country only 0.7 million of them actually
pay taxes. Furthermore, in an interview with a private channel, a former NBR chairman said
some of the people/companies who are paying taxes are paying less than the amount that they are
supposed to pay.
Now, one would realize that only about one-third of the eligible tax payers are actually paying
taxes and of these people some of them are not paying the amount that they are supposed to
actually pay. If the government increases the manpower of the NBR, gives them more power and
authority, creates laws to punish people for not paying taxes on time and strictly enforces such
laws and if the NBR organizes 'Tax Return Fair' in all districts, makes the tax return procedure
more convenient and hassle-free, continues rewarding the largest tax payers in the country and
ensures that the tax return website is working properly then the government will be easily able to
collect much more tax revenue.
The government should also hold seminars across the country encouraging citizens to pay taxes
by informing them the benefits the country will have if they pay their taxes and the
disadvantages of taking loans from foreign countries. This will also increase tax revenues. I
believe that if the above measures are taken rigorously then it should solve a lot of the financing
issue of the budget.
However, as we are a poor nation and as we need to have a GDP growth of at least 9% to lift our
nation to the next level in terms of wealth, the collected tax revenues may still not be enough to
finance the budget. This still does not give us the excuse to seek loan from donor nations and
agencies because there are other ways the government can increase its revenues.
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It has been said that currently in the stock market the demand for share is higher than the supply,
which has caused the prices of shares soaring. Instead of implementing policies to discourage
people to invest in the stock market, the government should take advantage of this situation
immediately by releasing the shares of the 27 government-owned companies that the government
was initially planning to release in the stock market. This will certainly boost the revenues of
these government-owned companies. As a result, the need for foreign loan will decrease too.
It was mentioned earlier that about 6.5 Bangladeshis work and live abroad and the money sent
back home by non-resident Bangladeshis (NRB) is the second largest contributor of foreign
income in Bangladesh. I believe that, this remittance amount can be increased if the government
makes the money transferring process more convenient and if it can stop the use of 'hundi' to
send money home. To make the money transferring process convenient the government can set
up branches of Bangladesh government owned banks in cities/countries abroad where
Bangladeshis reside.
To make it convenient for the NRB's to invest in the stock markets in Bangladesh, the Stock
Exchange Commission should make it possible to buy stocks online. To encourage NRB's to
invest in government-owned companies; the government can provide incentives such as allowing
the largest 50 or more NRB investors to use the VIP lounge at Hazrat Shahjalal International
Airport. In addition, to raise revenues, the Bangladeshi missions abroad can host Bangladeshi
cultural shows and seminars/conferences on issues related to Bangladesh.
Even if all the above steps are taken there may still be some budget deficit. To finance this
deficit, the government should first explore other revenue collection methods from Bangladeshi
citizens before searching for aid and loans from foreign countries and agencies. It may be very
difficult to stop seeking foreign loan right now but Bangladesh should try to stop it as early as
possible.
Bangladesh should stop the culture of seeking foreign loans as early as possible because it is not
sustainable for our economy; the gap between our country and developed countries will continue
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to increase and we will not have self-confidence and the power to decide our own future. If we
are able to finance our budget with our own money, then we will not have to worry about paying
back. This will help us gain more respect from other nations because it will make our economy
more stable and most importantly sustainable.
Conclusion
Assessments of both donors and recipients suggest that Bangladesh achieved mixed results in
loan effectiveness, although the country’s performance in utilizing loan seemed to have
improved significantly in recent years. The mixed success of Bangladesh can be traced to shared
failures on the part of both the government and donors.
The governance issues notwithstanding, Bangladesh has attained a measure of success in many
areas of the economy, thanks to entrepreneurial spirits and abilities of the ordinary people and
the dynamism of a vibrant civil society. However, past success is no guarantee for future success.
The requirements of governance vary from one stage of development to the next, and many
aspects of governance that were unimportant in the past are likely to become more critical as the
economy makes the transition from a rural agricultural economy to an urban industry-cum-
service economy . In making the transition, the country has to overcome the serious
infrastructural challenges facing the economy and create an environment that fosters rapid
private sector growth. In infrastructure development, both foreign loan and foreign investment
can play a critical role, but for both, governance matters. With respect to foreign loan, there are
serious concerns on the part of the donors on such matters as financial accountability, contracts
and procurements and fiduciary oversight. Unless these issues are resolved, attracting new
investments to infrastructure is likely to be difficult, thereby jeopardizing the prospects of further
accelerating economic growth in future.
However, one hopes that given the tremendous political pressures that the government faces at
the moment from the general public regarding various types of infrastructure bottlenecks—
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particularly, electricity, the government will be catapulted to action to redress these problems. If
this forces the government to start paying attention to the various types of governance issues that
thwart industrial progress that may usher in a new beginning. In that changed context, foreign
loan can be an enormous catalyst for economic development and poverty reduction. However, if
the government dithers and fails to act , that may erode the hard-earned economic gains achieved
by the country and lead to a path of unthinkable human tragedy that the early prognosticators of
doom had imagined. The country is really on the razor edge.
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