The interim government is set to significantly reduce the foreign aid component in the Annual Development Programme (ADP) for the fiscal year 2025–26, following a sharp decline in project execution—particularly of foreign-funded initiatives—amid ongoing political unrest.
According to sources at the Ministry of Finance, the foreign aid allocation is likely to be slashed by Tk 14,000 crore—from Tk 1 lakh crore in FY2024–25 to Tk 86,000 crore in the upcoming budget, marking a 16% decrease.
Despite the reduction from the original allocation, the proposed figure still reflects a Tk 5,000 crore increase over the revised target of Tk 81,000 crore for the current year, which was trimmed by Tk 19,000 crore due to dismal performance in utilizing external assistance following the August 5 political transition.
In comparison, foreign aid allocations were Tk 94,000 crore in FY2023–24 (later revised to Tk 83,000 crore), and Tk 93,000 crore in the year before that.
Implementation Bottlenecks
A wave of violent street protests in July 2024 led to the ousting of the Sheikh Hasina government and the installation of an interim administration headed by Nobel Laureate Professor Muhammad Yunus. To ease pressure on the state treasury, the new government adopted a conservative approach to development spending, reviewing politically motivated projects to curb waste.
The political upheaval also saw many contractors with ties to the former Awami League government leave ongoing projects, slowing implementation further.
The ADP implementation rate dropped to a five-year low of 36.65% in the first nine months of FY2024–25, with actual spending at Tk 82,894 crore—down from 42.3% or Tk 1,07,612 crore during the same period last year, according to IMED data. Even during the pandemic-hit FY2020–21, the implementation rate stood higher at 41.91% (Tk 87,735 crore).
Foreign aid utilization during July–March FY25 was only Tk 32,411 crore—just 32.5% of the target—compared to Tk 44,066 crore (46.8%) in the same period of the previous fiscal year.
Structural Challenges
Senior finance ministry officials attribute the reduction in foreign aid targets to persistent institutional weaknesses across ministries and implementing agencies. “There has been little improvement in execution capacity,” said one official.
Compounding the issue is an anticipated contraction in the overall budget size, necessitating tighter resource prioritization.
Analysts observe that the ongoing political transition has complicated project execution further. Despite efforts over the years to improve foreign aid utilization, systemic challenges continue to plague the process.
As of July 2024, Bangladesh had $42.85 billion in unused foreign aid. Even full utilization of this year’s allocation would account for just 16% of the available pipeline.
Finance ministry officials say that using even 20% of the aid pipeline is considered satisfactory. Between FY2010–11 and FY2020–21, the rate ranged between 11% and 13%, improving slightly to 19% in FY2023–24.
A recent Economic Relations Division (ERD) report cited frequent delays in project execution, leading to disbursement lags, time and cost overruns, and a growing dependence on domestic borrowing—hurting the balance of payments.
The report also flagged systemic flaws, including weak project planning, lack of feasibility assessments, insufficient training of project officials, and poor inter-agency coordination.
Frequent revisions of Development Project Proposals (DPPs) and Technical Project Proposals (TPPs), lengthy approval processes, a shortage of skilled personnel, frequent staff transfers, procurement delays, and land acquisition bottlenecks were also identified as key obstacles.
Policy Outlook
Planning Ministry officials noted that such inefficiencies not only escalate project costs but also trigger higher commitment charges from lenders.
The planned cut in foreign aid targets reflects a broader policy shift toward aligning development ambitions with execution capacity. The government now aims to rationalize project selection and improve resource utilization.
As the FY2025–26 budget nears finalization, the Finance Ministry and Planning Commission are expected to propose tighter screening of foreign-funded projects and stronger monitoring mechanisms to improve efficiency and transparency.