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In a decisive move to curb delays and cost overruns in development projects, the government has enforced a strict policy linking foreign loan disbursement to project readiness. According to a recent circular issued by the Economic Relations Division (ERD) on July 27, no foreign funds will be disbursed to implementing agencies without prior project approvals and the appointment of key personnel.

The ERD has outlined seven mandatory conditions that must be met before signing any loan or aid agreement with development partners (DPs). These pre-conditions are designed to ensure greater discipline in project preparation and execution, stemming the tide of inefficiencies that have long plagued externally funded initiatives.

Key Requirements for Loan Confirmation

Under the new directive, ministries and agencies must secure formal approval of their Development Project Proposal (DPP) or Technical Assistance Project Proposal (TAPP), as per Planning Commission guidelines, before any external financing arrangements can be finalized.

Additionally, implementing agencies are now required to:

• Appoint project directors and essential staff prior to signing agreements;
• Complete all necessary land acquisition and submit rehabilitation plans for displaced communities;
• Finalize procurement cost estimates and prepare draft tender documents;
• Advance the tendering process to contract-award stage if necessary;
• Obtain clearance from the Finance Division for subsidiary loan agreements, where applicable;
• Secure agreements with utility service providers for the relocation of services such as electricity, gas, and water lines.

A Shift Toward Financial Prudence

A senior ERD official noted that these measures are aimed at preserving the time value of money and enhancing overall project efficiency. “We’ve seen repeated cases where ministries pushed for loan signings without adequate groundwork, causing serious delays and budget escalations. These conditions will institutionalize readiness,” the official explained.

The policy applies not only to new pipeline projects but also to those currently undergoing the approval process. ERD officials emphasized that adherence to these conditions will be strictly monitored going forward.

The latest directive marks a significant shift in Bangladesh’s development finance governance, signaling a move towards more strategic, accountable, and performance-oriented use of foreign aid.