Need for effective use of aid

Aid is an important instrument to catalyse development, but only if it is managed in an effective manner. Significant efforts to enhance the effectiveness of development assistance have been made over the last ten years through three High-Level Forums on Aid Effectiveness and numerous issue-specific events. There have been some improvements internationally as well as in Bangladesh. Yet, the aid and development landscape continues to evolve.
Learning from what works best in development cooperation practice, global aid architecture has emerged through a set of principles and institutional arrangements that govern aid flows to developing countries. Although there is no uniform pattern, certain norms to improve aid effectiveness have developed through discussions in the Development Assistance Committee (DAC) of the Organisation for Economic Cooperation and Development (OECD), which eventually formalised these issues through the Paris Declaration on Aid Effectiveness in 2005 and its successor, the 2008 Accra Agenda for Action.
 HARMONIZING AID FLOW ACCORDING TO GOVERNMENT PRIORITIES ESPECIALLY FOR ACHIEVING MDGS: The Government of Bangladesh is committed to achieve the MDGs (Millennium Development Goals) within the given time frame and well tuned its development strategies in line with the MDGs. Bangladesh is among the few countries who have prepared the MDG Needs Assessment & Costing, and based on that prepared the MDG Financing Strategy. It is observed that during the period of 1990-91 to 2010-11, total ODA (official development assistance) received by Bangladesh was US$ 27.64 billion out of which the public administration sector got the highest share followed by power, transport, education, health, and physical planning, water supply and sanitation sectors. During the period, total disbursement in MDG sectors like education, health, social welfare and labour have shown rising trends. These MDG sectors, along with agriculture and rural development, received nearly 50 per cent of total ODA outlay.  
Resource constraint has been one of the major drawbacks of achieving all the MDGs. According to the 'Millennium Development Goals: Needs Assessment and Costing 2009-15, about BDT 1,018 billion (USD14.9 billion) would be required annually to attain all MDGs in Bangladesh during 2009-2015. However, MDG Financing Strategy for Bangladesh 2011 estimated a total requirement of US$ 78.2 billion during 2011-15 for attaining all the MDGs in Bangladesh. Two scenarios, baseline and high growth, were considered in the study. It was estimated that Bangladesh needed foreign assistance to the tune of US$ 5.0 billion and US$ 3.0 billion per year under the baseline and the high growth scenarios respectively. But it received on an average US$ 1.32 billion annually (from 1990 to 2011) that is far below what was required.
While trends show greater donor support in the form of higher ODA disbursements for the MDGs sectors, investment in scientific research, infrastructure improvement including rural roads, irrigation, fertilisers, seeds and credit for agricultural development should be prioritised for accelerated poverty reduction. The improvement of general governance structures to reduce costs of doing business so as to stimulate foreign investment and encourage regional investment in emerging and potentially high return sectors, establishment of Special Economic Zones along the international borders, encouragement of joint ventures with Non-Resident Bangladeshis (NRB) and similar other efforts need more concerted efforts for achieving accelerated growth to support MDG attainment.
Operationally using the Public-Private Partnership (PPP) initiative as an important modality for achieving the MDGs is a major priority for which finalising the policy and legal frameworks are concerns. The potential of FDI (foreign direct investment) has also remained under-exploited so far. For this, it is important that a national competitiveness study be carried out for identifying profitable areas of investment and developing a positive image of Bangladesh by flourishing democratic norms in governance.
It is now time Bangladesh adopted a policy regime that provides effective support to the growth of small and informal sector activities with significant poverty alleviation effects. In particular, developing the capacity of medium, small and micro enterprises (MSMEs) to take full advantage of global trade can prove critical in ensuring an inclusive trade regime in Bangladesh. Enhanced market access for LDCs (least developed countres) in developed countries in terms of duty-free, quota-free (DFQF) provisions will generate large welfare gains. Bangladesh, being a member of the LDC group at the WTO, has been lobbying for DFQF access for long especially to the US market.
Stimulating South-South trade still remains a constraint for the country. The DFQF access provided by developing countries can prove to be a useful entry point for Bangladesh in promoting South-South trade. Moreover, export diversification is critical for such expansion, as is technical assistance for sustainable diversification of the export basket. While negotiations at the Doha Development Round remain stalled, Bangladesh needs to pursue bilateral and regional free trade agreements (FTAs) to maximise and diversify its export potential. A comprehensive and time-bound trade strategy which captures Bangladesh's dynamic comparative advantages and outlines its transformation from a low-skilled, low-value added economy to a moderately skilled and medium-value added economy is a must. Integrating trade and industrial policies is yet another priority for the country to alleviate supply side constraints.
Bangladesh needs to form strategic alliances with other LDCs in order to present a unified and strong position in the WTO negotiations in the area of services, especially with respect to mode 4, as the country has a large endowment of less-skilled and semi-skilled labour which can repatriate significant remittances which is a very significant growth driver for Bangladesh. Lack of access to timely information and services on legal migration and difficulties in implementing migration-related policies and legislation and reducing costs of migration are key challenges that negatively impact regular migration from the country.  
Dependency on imported Active Pharmaceutical Ingredients (APIs), insufficient capacity for testing, quality assurance, research and development, as well as limited ability and opportunities to foster trade and investment relationships (both North-South and South-South) have prevented Bangladesh from using the flexibilities of the Doha Declaration on trade-related intellectual property rights (TRIPS) and public health to realise the tremendous potential of its pharmaceutical industry.
FDI (foreign direct investment) flows are also subject to the vagaries of the market. The concentration of FDI only in selected developing countries deprives a large number of LDCs from FDI and transfer of technology. In the current economic climate, there has been significant drop in the level of FDI to the emerging markets in LDCs. It is strongly felt that the transfer of technology in respect of goods and services, mining, ports and shipping, telecommunications, power generation, agricultural productivity and infrastructure development are the foremost areas where Bangladesh and other LDCs need utmost attention from the industrialized countries.  
The LDCs have been unable to benefit from the market opening that the WTO has achieved or likely to achieve because of their very limited productive capacity and the lack of necessary trade-related capacity and basic infrastructure. Unrealistic rules of origin (ROR) are also a major deterrent to increasing exports for the LDCs. In these respects, Bangladesh is also not an exception.  
 CONCLUSION: As budgets shrink and challenges mount, numbers of donor countries have already begun to seek waiver in their commitment to international development and even to reconsider the promises they made not only in the Millennium Declaration but also in the Monterrey Consensus and the G8's Gleneagles Declaration. However, whatever dire the current economic situation may be, this growing reluctance to honour pledges cannot be ascribed to budgetary constraints alone, given the comparatively modest sums involved. The message must be that achieving the MDGs is not optional, because it is an essential investment in a safer, more human and prosperous world. The goals are not just an "aid obligation" but the basis for political and economic strategies that will benefit all the world's citizens, and not just the least fortunate.
International partnership for global development, which has mostly remained unfulfilled, must put great emphasis on the immense role that both the developed and developing countries can play. Adequate, stable and predictable financing, as well as efficient use of resources is required to support socio-economic development. This will require honouring international, regional, and national financing commitments, enhancing domestic resource mobilisation, and complementary and innovative sources for finance such as private investment, increasing  corporate social responsibility, philanthropy, North-South, South-South and triangular cooperation, public-private partnerships, etc. Enhanced knowledge sharing, capacity building, technology transfers, data sharing and trade will also be the key.
At the beginning of the 21st century it became clear that aid was not delivering the expected results. Inadequate methods and differences in donor approaches made aid less effective. Action was needed to boost impact. It became apparent that promoting widespread and sustainable development was not only about amounts of aid given, but also about how and for what aid was given. Some donor practices were proving problematic for developing countries to deal with. It is against this background that the international aid effectiveness movement began taking shape in the late 1990s. Donors/aid agencies, in particular, began to realise the costs they imposed on aid recipients by their many different approaches and requirements. They began working with each other, and with partner countries, to harmonise these approaches and requirements.
 Professor Dr. Shamsul Alam is Member, General Economics Division of Bangladesh Planning Commission. Dr. Md. Taibur Rahman, Senior Assistant Chief, has provided research support in preparing this policy brief.
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