Foreign aid and Bangladesh scenario

Dhaka,  Thu,  08 December 2016
Published : 23 Nov 2016, 21:21:16

Foreign aid and Bangladesh scenario

Wasima Nahrin, Jesun Rahman Jui, Sadia Afrin Munny and Mostafezur Rahaman
Various donor countries and agencies have provided Bangladesh with substantial amounts of public foreign assistance since independence in 1971. At the time of present government, from the fiscal year 2009-10 to the fiscal year 2015-16, foreign aid of US$ 32.40 billion has been committed, of which 4.70 billion as grant and US$ 27.70 billion as loan. 

Bangladesh has several bilateral and multilateral associates to collect foreign aid from. These include multilateral sources like World Bank, ADB, UN, European Union, IDB and also bilateral sources like Japan, China, UK and India. These sources have played a vital role in the socio-economic and infrastructural development of Bangladesh by providing assistance.

Bangladesh has now become as a low middle-income country and aspires to become a middle-income country by 2021 - which is a reflection of the success of our economic policies and strategies. Recently, the Government of Bangladesh has launched Aid Information Management System (AIMS) with the purpose of managing foreign aid and collecting real-time data from development associates. Already 14 donor countries and organisations have provided information to this system.  Anyone can use the web portal (www.erd.gov.bd) from anywhere and log into the public user to get the information. Alongside, to closely monitor and efficiently manage foreign aid, the pipelines and the ongoing projects, web-based software is also being developed. This system is intended to be launched by December, 2016.

Besides negotiating foreign aid, the Ministry of Foreign Affairs also arranges international conferences. Bangladesh also actively participates in different international forums and international development discussions. This has increased opportunities of negotiating foreign assistance.    

THEORETICAL BASIS OF FOREIGN AID: Carol J. Lancaster, Fellow of Center for Global Development and Dean of Edmund A. Walsh School of Foreign Service, Georgetown University, explains aid as "A voluntary transfer of public resources, from a government to another independent government, to an NGO, or to an international organisation with at least a 25 per cent grant element, one goal of which is to better the human condition in the country receiving the aid". The Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD), defines foreign aid (or the equivalent term, foreign assistance) as financial flows, technical assistance, and commodities that are (1) designed to promote economic development and welfare as their main objective (thus excluding aid for military or other non-development purposes); and (2) are provided as either grants or subsidised loans (Redelet Stefen, 2006).

Foreign aid to developing countries has been an important source of finance to enhance economic growth. However, the usefulness of foreign aid to the third world developing countries like Bangladesh is a debatable issue. 

Liberal economists argue that aid both in the form of grants and loans can play a vital role in the development of any country, if it is channelled through proper biding and used effectively in the development projects. 

Jeffrey Sachs, Joseph Stieglitz and Nicholas Stern have argued that although aid has sometimes failed, it has supported poverty reduction and growth in some countries.  In general, aid is found to have a positive impact on economic growth through several mechanisms - aid increases investment, capacity to import capital goods or technology, capital productivity and promotes endogenous technical change. 

On the other hand, critics such as Milton Friedman, Peter Bauer and William Easterly have argued that aid has enlarged government bureaucracies, perpetuated bad governments, enriched the elite in the poor country or just been wasted. There are a number of underlying causes behind this, such as aid dependency, bad economic management of the recipient countries, corruption and poor coordination and cooperation among aid agencies etc.

Since most foreign aid is government to government, it is government's discretion how they allocate foreign aid resources - whether in productive or unproductive sectors. If foreign aid contributes to productive sectors such as enhancing education, building rural and urban infrastructure, protecting private property, and reducing trade risks, it results in a net benefit to economic performance. But sometimes a government does not  invest the aid resources in the above sectors. Moreover, lack of commitment and accountability among the government and the non-governmental organisations (NGOs) is also a reason for which economic growth is hampered.

But all said and done, foreign aid has apparently supported poverty reduction and growth promotion in many countries.

Wasima Nahrin, Jesun Rahman Jui, Sadia Afrin Munny, Mostafezur Rahaman are students of MDS 14th Batch,Department of Development Studies, University of Dhaka.

sadiaafrin130@yahoo.com

 
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