Rising dollar pushes up development project costs

The US dollar was worth Tk 85 in Bangladesh just a few years ago. In other words, one US dollar could be exchanged for Tk 85. However, the exchange rate has changed over time. As of Monday night, one dollar was trading at Tk 124.34.

As a result, the estimated costs of ongoing development projects that were undertaken three to five years ago are no longer the same. It has become impossible to complete these projects within the estimated budgets or the costs projected in their tender documents based on the exchange rates prevailing at the time. Consequently, ministries and divisions are being forced to revise their projects.

The Planning Commission says the increase in the dollar’s value is one of the key reasons behind project revisions. As a result, the number of project revision proposals is also increasing. The dollar’s appreciation is also responsible for more than doubling the costs of two metro rail projects in the capital that were recently revised.

However, Dr Zahid Hossain, former lead economist at the World Bank’s Dhaka office, has stressed the need to examine whether the rising dollar is being used merely as an excuse.

He told Agamir Somoy, “If the increase in the dollar’s value is cited as a blanket explanation, it is necessary to examine when the original project was undertaken and what the actual exchange rate was at that time. A project does not depend solely on fluctuations in the dollar’s value. In this case, it is necessary to examine how much goods are being imported for the project and their total value. The actual situation must be determined through calculations based on these factors. I think that in most cases the increase in the dollar exchange rate is cited as an excuse. We must move away from this practice.”

According to Zahid Hossain, the government should reconsider projects whose costs have increased excessively due to the higher dollar rate. This is because the cost-benefit ratio calculated at the time of approval will no longer be the same if the projects are implemented at the increased costs. Therefore, if there is an opportunity or only a small portion of the work has been completed, such projects should be abandoned.

On this issue, Agamir Somoy spoke with Kabir Ahmed, member (acting secretary) of the Agriculture, Water Resources and Rural Institutions Division of the Planning Commission.

Drawing on his experience at the Planning Commission, he told Agamir Somoy, “The cost of development projects is increasing because of the higher dollar rate. This is because most projects in our country require the import of various types of machinery from abroad. In addition, stone chips, bitumen, steel, stones and other materials have to be imported. For example, the production of bitumen depends on the price of fuel oil. Eastern Refinery and Bashundhara produce some bitumen in the country. However, their production is far below demand. As oil prices have increased, the price of bitumen per ton has risen from Tk 70,000 to Tk 80,000 to more than Tk 100,000.”