Changing aid scenario: Tasks ahead
Thursday, 21 June 2007
Shahiduzzaman Khan
Global aid scenario has undergone a thorough change in recent times. Development partners are now unwilling to offer generous assistance as grant. Rather, they offer credit, often tied with harsh, undignified conditionalities.
The world is no more divided into two camps. With the fall of Communism, the cold war era ended. Aid recipient countries are no more strongly weighed by the donors on political ground. Unbridled corruption and rampant irregularities in utilising the aid money have prompted the donors to cut generous grant to the poor countries.
A report published in the FE this week suggested that the overseas grant assistance for Bangladesh has been declining over the years. Out of the country's total foreign aid in fiscal 2005-06, the grant portion declined to 31.9 per cent from 47.4 per cent in fiscal 1973-74 and from 48.0 per cent in fiscal 1990-91.
With the shrinking of grant in the external aid in recent years, the volume of loans has been rising thus resulting in a progressive increase of per capita debt obligation in the country. Per capita debt obligation of Bangladesh has increased to US$139.91 in the last fiscal from $6.59 in the fiscal 1973-74.
Bangladesh received $831.5 million as grant and $901.1 million as loan in 1990-91 fiscal year, but the ratio of grant and loan has decreased significantly in fiscal 2005-06. Last fiscal the donors disbursed grants worth only $500.5 million while loans stood at $1067.1 million.
Huge trade deficit and weak revenue collection are primarily forcing the government to borrow from the bilateral and multilateral donors to bear growing public expenditure in the country. The government's domestic borrowing went up by 127 per cent during the first nine months (July-March) of the current fiscal year (2006-2007) due to shortfall in revenue and decline in foreign aid. Foreign aid dipped by 4.0 per cent during the July-March period of the current fiscal. The government received only Tk 37.49 billion in foreign aid during the period against Tk 39.11 billion during the same period of the last fiscal.
Explaining the reasons behind reduced flow of foreign aid, the Economic Relations Division (ERD) said the immediate past 4-party alliance government banked heavily on local financial sources for implementing the annual development programme (ADP). Besides, the last year's political deadlock also stood in the way of foreign aid inflow.
The food grant to Bangladesh last fiscal stood at $97.23 million. But in 1990-91 fiscal, Bangladesh received food grants worth $268.554 million, which declined to $138.02 million in 1999-00 fiscal, and $32.465 million in fiscal 2004-05. Some experts feel that decline in the share of food aid was the main reason for the reduction in grant flow to Bangladesh.
It is now evident that the development partners have changed their aid pattern to Bangladesh for alleged corruption in grant utilisation by the government agencies. It is true that the monitoring authorities in the government did not monitor the utilisation of grants strictly in the previous years, which enabled the executing agencies to indulge in corruption.
Dependence on foreign aid has considerably declined in the recent years. Success of Bangladesh in the fields of economic growth, export promotion, remittance, etc., has created a situation where the country can think about further reduction of dependence on foreign aid, particularly the non-productive aid or aid with more conditionalities. This can be done through, among others, by reducing the size of ADP by cutting non-important projects, enhancing exports and measure for enhancing remittances further and enhancing domestic resource mobilisation through further fiscal and financial reforms.
In the case of Bangladesh, macro-economic management has been good but aid inflow has not increased in the past few years. But this is mainly because foreign aid does not only depend on macroeconomic management but also on other factors such as fiscal policy, monetary policy and the strength of the financial sector and fulfilling the terms imposed by the donors.
Even though GDP growth has been pretty consistent for Bangladesh, the gap between rich and poor has been on the rise. If corrective measures are not taken, the situation will continue for the years to come, which does not bode well for the Bangladesh economy.
A number of experts have raised question about the utility of foreign aid in the developing nations. This is definitely an important issue and a matter of review by experts for a long time. After the World War II, the US Secretary of State John C Marshall proposed that the war-ravaged West European nations must be saved from the onslaught of Communism by fixing their economies through generous economic aid. The US Congress accepted his suggestion and an aid package of about $19 billion was floated. This aid was diligently used by the European nations and this helped them to a great extent to revitalise their ravaged economies. During the Cold War period foreign aid from the west was given considering the political inclination of the recipient nation and this trend is still there in various forms.
Although it is true that foreign aid comes with strings, the tragedy is that despite so many disadvantages no poor nation can do without it. Their economies come to deadlocks, prices go up and the public suffering goes up when its flow declines.
It is very hard for the poor nations to stand erect economically to stop relying on this necessary evil. The world economy is so intertwined that no nation can survive by itself. But there should be internal efforts for strengthening an economy so as to stand on own feet at the time of a crisis. Every nation should be committed to attaining it rather than relying more on foreign aid.
Global aid scenario has undergone a thorough change in recent times. Development partners are now unwilling to offer generous assistance as grant. Rather, they offer credit, often tied with harsh, undignified conditionalities.
The world is no more divided into two camps. With the fall of Communism, the cold war era ended. Aid recipient countries are no more strongly weighed by the donors on political ground. Unbridled corruption and rampant irregularities in utilising the aid money have prompted the donors to cut generous grant to the poor countries.
A report published in the FE this week suggested that the overseas grant assistance for Bangladesh has been declining over the years. Out of the country's total foreign aid in fiscal 2005-06, the grant portion declined to 31.9 per cent from 47.4 per cent in fiscal 1973-74 and from 48.0 per cent in fiscal 1990-91.
With the shrinking of grant in the external aid in recent years, the volume of loans has been rising thus resulting in a progressive increase of per capita debt obligation in the country. Per capita debt obligation of Bangladesh has increased to US$139.91 in the last fiscal from $6.59 in the fiscal 1973-74.
Bangladesh received $831.5 million as grant and $901.1 million as loan in 1990-91 fiscal year, but the ratio of grant and loan has decreased significantly in fiscal 2005-06. Last fiscal the donors disbursed grants worth only $500.5 million while loans stood at $1067.1 million.
Huge trade deficit and weak revenue collection are primarily forcing the government to borrow from the bilateral and multilateral donors to bear growing public expenditure in the country. The government's domestic borrowing went up by 127 per cent during the first nine months (July-March) of the current fiscal year (2006-2007) due to shortfall in revenue and decline in foreign aid. Foreign aid dipped by 4.0 per cent during the July-March period of the current fiscal. The government received only Tk 37.49 billion in foreign aid during the period against Tk 39.11 billion during the same period of the last fiscal.
Explaining the reasons behind reduced flow of foreign aid, the Economic Relations Division (ERD) said the immediate past 4-party alliance government banked heavily on local financial sources for implementing the annual development programme (ADP). Besides, the last year's political deadlock also stood in the way of foreign aid inflow.
The food grant to Bangladesh last fiscal stood at $97.23 million. But in 1990-91 fiscal, Bangladesh received food grants worth $268.554 million, which declined to $138.02 million in 1999-00 fiscal, and $32.465 million in fiscal 2004-05. Some experts feel that decline in the share of food aid was the main reason for the reduction in grant flow to Bangladesh.
It is now evident that the development partners have changed their aid pattern to Bangladesh for alleged corruption in grant utilisation by the government agencies. It is true that the monitoring authorities in the government did not monitor the utilisation of grants strictly in the previous years, which enabled the executing agencies to indulge in corruption.
Dependence on foreign aid has considerably declined in the recent years. Success of Bangladesh in the fields of economic growth, export promotion, remittance, etc., has created a situation where the country can think about further reduction of dependence on foreign aid, particularly the non-productive aid or aid with more conditionalities. This can be done through, among others, by reducing the size of ADP by cutting non-important projects, enhancing exports and measure for enhancing remittances further and enhancing domestic resource mobilisation through further fiscal and financial reforms.
In the case of Bangladesh, macro-economic management has been good but aid inflow has not increased in the past few years. But this is mainly because foreign aid does not only depend on macroeconomic management but also on other factors such as fiscal policy, monetary policy and the strength of the financial sector and fulfilling the terms imposed by the donors.
Even though GDP growth has been pretty consistent for Bangladesh, the gap between rich and poor has been on the rise. If corrective measures are not taken, the situation will continue for the years to come, which does not bode well for the Bangladesh economy.
A number of experts have raised question about the utility of foreign aid in the developing nations. This is definitely an important issue and a matter of review by experts for a long time. After the World War II, the US Secretary of State John C Marshall proposed that the war-ravaged West European nations must be saved from the onslaught of Communism by fixing their economies through generous economic aid. The US Congress accepted his suggestion and an aid package of about $19 billion was floated. This aid was diligently used by the European nations and this helped them to a great extent to revitalise their ravaged economies. During the Cold War period foreign aid from the west was given considering the political inclination of the recipient nation and this trend is still there in various forms.
Although it is true that foreign aid comes with strings, the tragedy is that despite so many disadvantages no poor nation can do without it. Their economies come to deadlocks, prices go up and the public suffering goes up when its flow declines.
It is very hard for the poor nations to stand erect economically to stop relying on this necessary evil. The world economy is so intertwined that no nation can survive by itself. But there should be internal efforts for strengthening an economy so as to stand on own feet at the time of a crisis. Every nation should be committed to attaining it rather than relying more on foreign aid.