It has been 17 months since the interim government assumed office. Given that several advisers and key policymakers are known for their familiarity with the foreign aid ecosystem—some having played important roles in shaping the country’s development trajectory—the nation expected visible improvement in the management of external loans and grants channelled through the government system. If we take into account the FY2024-25 budget ratios, foreign aid accounted for 37.7 percent of the Annual Development Programme (ADP), the core policy instrument through which the country’s development priorities are operationalised. Expectations from the interim government rose further when it placed governance reform at the centre of its mandate. Yet, as the country moves closer to a national election scheduled for February 12, the critical question dominating the policy debate is: how far has the interim administration actually strengthened foreign aid governance in practice, and what key lessons must the next elected government carry forward?
The interim government assumed office at a time when Bangladesh, under the previous administration, had been mobilising large annual external resource flows. Disbursement of foreign assistance reached a record high of $10 billion in FY2021-22. Although foreign fund utilisation hovered between 11 percent and 13 percent from FY2010-11 to FY2020-21, it improved over the next three fiscal years, reaching as high as 19 percent by FY2023-24—the highest in more than a decade. External partners also continued to provide large-scale financing, including budget support, indicating their confidence in macroeconomic management and stated reform commitments, at least at the negotiating table. However, the country remained constrained by a structural absorptive-capacity bottleneck driven by chronically weak execution. Foreign aid was also loan-dominated. Using FY2023-24 data, the loan-to-grant ratio stood at 92:8, showing how the country’s external financing was structurally debt-based rather than grant-driven.
In this context, the interim administration was expected to deliver measurable improvements and governance innovations in foreign aid management and implementation, creating replicable benchmarks for the next elected government. So, if the promise was reform, and the measure is performance, how much has the government actually delivered?
Compared to FY2023-24, foreign aid commitments fell by 22.5 percent and disbursements by 16.6 percent in FY2024-25, the first full fiscal year under the interim administration. The external resource model also remained structurally loan-dominated: in the first six months of FY2024-25, the loan-grant composition stood at around 87:13, and by year-end it worsened further to 94:6 (as per an ERD report), reinforcing the country’s deepening reliance on borrowing rather than concessional grants. Early FY2025-26 data show that commitments and disbursements of foreign loans have picked up again, with loan commitments rising by 133 percent in the first five months, even as debt repayment pressures continue to climb.
Yet, external financing has not stopped flowing. Japan announced a $1.063 billion package in FY2024-25, including a $418 million development policy loan and a $641 million loan for rail modernisation. The World Bank signed a $850 million financial package in April 2025 to help Bangladesh with developing the Bay Terminal deep sea port and modernising the national social protection system. Earlier in December 2024, it announced a $1.16 billion package to help with inclusive and climate-resilient development. The Asian Development Bank also approved a $400 million loan in June 2025 to build resilience against climate impacts, curb emissions in climate-critical sectors, and promote inclusive development. This steady stream of loans underscores an uncomfortable truth about aid governance.
Bangladesh is receiving external resources largely as concessional debt that is increasingly policy-driven, but the interim government has not demonstrated commensurate improvement in delivery systems, absorptive capacity, or the institutional discipline required for effective aid governance. In effect, the state is becoming better at mobilising loans than at utilising them for timely implementation and measurable development outcomes.
The deeper concern, however, lies in absorptive capacity—where foreign aid governance either succeeds or collapses—and Bangladesh’s recent performance sends a clear warning signal. When ADP implementation fell to a historic low of 67.85 percent in FY2024-25 and reached only 11.7 percent in the first five months of FY2025-26, the problem is no longer financing or donor appetite, but a state machinery unable to translate commitments into execution. In FY2024-25, out of $8.57 billion in foreign aid disbursement, the year ended with only 13.57 percent project-related utilisation, demonstrating that even when aid was disbursed, the system struggled to convert it into project execution, a direct sign of weak absorptive capacity. This pattern has continued into FY2025-26, with the interim government spending only 11.7 percent of ADP funds in the first five months.
Foreign aid governance is ultimately judged by delivery, yet the state’s absorptive capacity continues to erode under layers of procurement delays, overcentralised approvals, and weak project readiness. When implementation remains hostage to slow contracting, poor monitoring, and a culture of spending without results, every new loan agreement becomes a future repayment burden rather than a development gain.
The interim government’s foreign aid record so far reveals some hard realities. Loans and financing packages continue to arrive, yet commitments and disbursements have declined, and absorptive capacity has weakened further. In a loan-dominated aid regime, this is not merely inefficiency; it is a fiscal risk. Seventeen months was sufficient time for the interim administration to establish a visible reform footprint in foreign aid governance. At a minimum, the country should have seen a stronger project-readiness regime, faster procurement cycles, stronger monitoring discipline, and a public transparency framework for the aid pipeline and its results.
The lesson for any future elected government is clear: foreign aid governance cannot remain a negotia-tion-centred exercise; it must become an execution-centric discipline. Bangladesh needs a rules-based de-livery system that enforces readiness, compresses procurement timelines, rationalises the pipeline, and links every external loan to measurable outcomes and repayment capacity. Without these reforms, the country will remain trapped in a cycle of borrowing to finance its development ambitions, while failing to build the institutions needed to deliver them.
Muhammad Muktadirul Islam Khan is principal researcher and head of consultants at the Sustainability Action Learning Lab. He can be reached at [email protected].
Views expressed in this article are the author's own.
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