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More aid utilisation unlikely to raise forex reserve: officials

by Imam Ahmed
Contrary to the World Bank’s (WB) suggestion that in creased aid utilisation would help raise foreign exchange reserve. government officials contend that this would hardly make any difference
Their argument lies in the fact that conventional aid is basically meant for import and it is the policy-based lending that actually adds to the country's reserve
"But beginning from now to near future, there are hardly any big policy based lending
By Inam Ahmed
that could mean that improve ment in disbursement would Jack up the foreign exchange reserve." said a senior finance ministry official “In fact, some big policy-based loans like Jute Sector Adjustment Credit (JSAC). and Public Resource Management Adjustment Credit (PRMAC) helped the country accumulate huge foreign exchange reserve, as much as 3.5 billion US dollars, in the mid 1990s
The WB in its recent Annua) Economic Update 1997 prepared
ahead of the coming Aid Group meet has suggested for ’’sustained efforts to increase •‘d utilisation ” as a way of rebuilding foreign exchange reserve to a comfortable level "an important policy challenge in
But government officials point out that foreign aid disbursement tn 1996-97 was higher than the previous year's, and still the reserve plummeted.
Disbursement in 1996-97 was 1475.3 million dollars
against 1444.8 million dollars in 1995-96. Project aid disbursement was 1111 million dollars, commodity aid 263 million dollars and food aid 101 million dollars in 1996-97. Excepting food aid. disbursement in other types of aid was higher than last year.
Food aid was 27 per cent lower than 1995-96 because the government felt that after a bumper crop, additional food import would put pressure on price.
In case of -policy-related loans, the government can not outright spend it. "First the government has to use it in local currency and deposit the foreign exchange against its spending. This helps raise the foreign exchange reserve," the official said.
According to figures available from the Economic Resources Division (ERD) of the finance ministry, there had been a sharp upturn in policybased lending since 1991-92 till 1994-95.
From 30.984 million US dollars In 1990-91, commitment of policy-based loans rose to 279.993 million dollars in 1991-92. It stood at 104.592 million US dollars in 1992-93, 281.257 million dollars in 1993-94, and 85.558 million dollars in 1994-95.
Keeping with rising commitment. disbursement of policy-based loans also rose to 64.719 million US dollars in 1991-92 from 56.888 million dollars in 1990-91. It shot to 105.257 million dollars in
1992-93. 164.466 million dollars in 1993-94. and 133.489 million dollars in 1994-95.
"This disbursement of policy-based loans contributed to the build up of reserve." said a finance ministry official. "But this reserve build up also led to a spending spree by the government by taking up a number of big self-financed projects with high import component. Such spending again quickly depleted the reserve. This is what is called as 'Dutch disease'."
For example, the government had taken an ambitious railway improvement plan that saw import of locomotives and coaches that alone contributed to an about 100 million US dollars draw down on reserve.
Explaining why policybased lending dried down in the later years of 1990s. the officials said most of such loans came under hard conditionalities. The first trenches were released following commitment to fulfil the conditions. But the rest of the trenches were not available as the government could not meet its pledges.
A 201 million US dollars balance of J SAC was cancelled this year after remaining in a limbo for a long time, and 20 million dollars balance of PRMAC also faced the same fate.