Foreign Loan in Bangladesh

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. 3|Page

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. 5|Page

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. 7|Page

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 FY11

Projection 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) Current Account Balance (% of GDP) ForexReserve (blnUSD)

11.5

12.7

14.2

15.9

17.8

20.0

-0.3

-0.2

-0.2

-0.3

-0.4

-0.6

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 FY11

Total Revenue

Projection (as % of GDP) FY12

FY13

FY14

FY15

FY16

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

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 Expenditure

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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 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 Crore Tk

BFY12

% of GDP

Crore Tk

Growth

% 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

4,938

0.5

16.9

Financing 0.5

Foreign Grants

4,224

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) Non-Bank Borrowing (Net) Total Aid Requirement (Net) Total Aid Req (Net, bln US$)

18,379

2.3

18,957

2.1

3.1

6,438

0.8

8,251

0.9

28.2

10,007

1.3

17,996

2

79.8

1.4

-

2.5

-

79.8

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Total Aid Req (Gross) Total Aid Req (Gross, bln US$)

15,144

1.9

23,623

2.6

56

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 16 | P a g e

annual GDP growth at 6%. A significant number of people still live below the poverty level and 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 17 | P a g e

will have to be spent on paying back the loans that we are acquiring right now. Thus, this is not 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.

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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 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 19 | P a g e

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.

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.

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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 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-cumservice 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.

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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— 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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