Sharp drop in the flow of aid resources

The Finance Minister (FM) recently submitted a report in the Jatiya Sangshad (JS) on the flow of aid resources in the country. It was a deeply pessimistic one, to say the least. For a long time, the country has been blessed with a reasonably healthy flow of aid resources. The donors did indeed decrease their aid flow to Bangladesh from time to time. They also faulted in disbursing committed resources adequately in the past. But it has probably never been so bad like in the current fiscal year. According to the finance minister's report on the aid situation in the first six months of the current fiscal year, the net receipt of aid resources ( both loan and grant) in this period has declined by some 87 per cent in comparison to the same period of the previous fiscal year. In the corresponding period of the previous fiscal year, the receipt of aid money was Tk 51.72 billion. The amount received in the first half of the current fiscal year was the equivalent of Tk 6.48 billion. Thus, a reduction of 87 per cent in the aid flow is noted. There is also another way of looking at the aid picture which is even more cause for concern. According to reports quoting the External Resources Division (ERD), much more resources have gone out of the country in servicing older debts compared to what resources became available as new aid. Thus, the equivalent of some Tk 37.55 billion has gone out of the country for debt servicing in the first six months of the current fiscal year whereas only the equivalent of Tk 6.48 billion was received as fresh aid. This is indeed a very disquieting picture of the total aid situation when investments in the economy have been lagging and government has been under much greater pressure than at other times in the past to find adequate resources for implementation of its developmental projects and programmes. In a recent press meet, the finance minister also underlined aspects of aid disbursement which are hardly favourable for the country. He criticized the donors for not following up sincerely in disbursing the committed aid resources. But in all fairness, he should be criticizing the inefficiencies and lack of concern of his own government which has led to this situation. Donors usually are in no frame of mind to punish a struggling country like Bangladesh by withholding aid. Rather, they want to disburse greater aid to a deserving recipient country if they find its absorptive capacity to be better and its record clean of corruption in utilizing aid resources. However, this has not been the case for Bangladesh as seen from the donors' perspective. The donors maintain that the actual performance record of the incumbent government has been relatively poor in the implementation of aided projects and programmes. This, more than any other factor, must have led to a sort of donor fatigue and reluctance to disburse aid resources to Bangladesh sufficiently. Notwithstanding the undesirability of taking foreign aid specially in the form of loans, the same continues to be important for Bangladesh to meet shortfalls in its resources for developmental spending and other requirements. The country's tax base is still very narrow, which is a big impediment in mobilizing internal resources for undertaking developmental and other activities. There is also a point in not pushing through an expansion of this tax base too hard and too soon because the same could discourage people from saving. The argument goes that wealth should first be allowed to be created amply before taking it away substantially as taxes. Thus, foreign aid has been traditionally looked at as a way of filling resource gaps and especially for building infrastructures in support of domestic entrepreneurial activities. The country's power sector, communications sector, road networks and other necessary infrastructures for the functioning and expansion of a modern economy, were built largely with foreign aid in Bangladesh, like in other developing countries. Thus, these countries can be considered as having gained by using such aid to strengthen their economies although the same involves debt servicing. But the prospects of a good foreign aid flow in the future is now coming under a cloud from the ongoing recession and financial and economic troubles in the developed countries. The very distressed condition of Japan after the earthquake and tsunami related disasters, will likely undermine its capacity to extend aid when it would need to divert vast sums of money for its own reconstruction. This is bad news for Bangladesh, as Japan is its largest bilateral donor. Thus, Bangladesh will have to compete harder for scarce aid resources and this would require it to be more efficient for the timely, proper and full utilization of aid resources for obtaining the optimum benefits for its economy. The challenge for Bangladesh will be to devise policies immediately to make the best use of aid. It has to be a lot more competitive to justify a reasonable flow of aid to it under the present conditions. The justification will depend on fast preparatory work to get the aid resources and to use the same equally as fast and properly to satisfy the donors.