Economic Relations Division of the finance ministry has finalised National Policy on Development Cooperation to discipline mobilising and managing foreign loans and grants and ensure effective use of foreign funds.
The general principle of the policy is to discourage all offers of foreign loans and grants having excessive conditions, higher transaction cost and less aligned with national priorities.
All forms of tied loan will also be strongly discouraged, according to the final draft of the policy.
On the other hand, the government will generally prefer concessional loan or soft loan and encourage its partner to provide foreign assistance through budget support.
The final draft of the policy has been posted on the website of the ERD for the stakeholders’ feedback, officials of the division said.
The policy would be placed before the cabinet soon for its approval as the government decided to make it effective from the beginning of the next fiscal year starting in July, they said.
They observed that every year the country was receiving and utilising a huge amount of foreign assistance in the forms of loans and grants without having any consolidated policy or guidelines on mobilising and managing the funds.
So, they think, formulating a comprehensive policy has become an imperative for the government to handle the foreign assistance strategically, according to the country’s own development priorities and bring discipline to the sector.
The policy has set some objectives including ensuring that foreign assistance is need-based and result-oriented and poses no challenge to macro-economic stability, security and integrity of the country.
Credits from the International Monetary Fund, special borrowing by the ministry of food, Bangladesh Shipping Corporation, Bangladesh Biman, Bangladesh Petroleum Corporation, assistance for defence and special assistance during disaster and natural calamity, however, shall remain beyond the scope of this policy.
According to the policy, all development interventions should be based on the priorities set by the national development planning and budgeting documents and systems.
All data regarding foreign assistance, both on-budget (implemented by the government ministries and agencies) and off-budget (implemented by non-government ogransations or NGOs, private sector) shall be made public through the ERD online system.
On the other hand, the government will encourage its partners to provide foreign assistance through budget support or sector budget support to increase the government ownership.
Foreign assistance in a single project brings low development results, it says.
The government will generally prefer concessional loan as such loans can be helpful to address the lack of long-term financing for infrastructure.
According to it, loans having a grant element of at least 25 per cent and other concessional elements may be considered as concessional.
The policy says that though the government’s priority is concessional loan, non-concessional loans may be pursued only for priority projects/programmes of the government under certain conditions and only in exceptional cases.
All non-concessional loans must require approval of the standing committee on non-concessional loan headed by finance minister, it says, adding that the government will undertake periodic analysis of debt.
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