How Dependent is Bangladesh on Development Aid?

    LightCastle Analytics Wing
    LightCastle Analytics Wing
    Foreign Aid

    Bangladesh, a meager delta that is home to almost 161.5 million nationals, a country soaring with an arching, profound growth rate of 7.9% and a per capita income of $2,073, is ranked as the 35th nation according to GDP.  Bangladesh is an economy that promises growth and development and a possible furtherance to a middle-income economy by 2025, but to what extent is this country in hock to foreign aid?

    Foreign aid, candidly, refers to any type of assistance that one country voluntarily transfers to another, which can take the form of a gift, grant, or loan. In Bangladesh, the standard practice is to treat only the loans received on concessional terms and grants as foreign aid. Foreign aid to Bangladesh is classified based on terms and conditions, source and use. The various types foreign aid this country receives are termed as either loans or grants; bilateral aid or multilateral aid or food aid, commodity aid, project aid and technical assistance. Food aid is the supply of food from the donor countries and organizations or payment to suppliers of food to Bangladesh by them. Donor payments of costs associated with food supply such as transport, storage, distribution, etc., are also considered as food aid. Major commodities imported into Bangladesh under commodity aid programs are edible oil, seeds, fertilizers, and chemicals. Meanwhile, Project aid is the provision of grants and loans for the financing of project costs. It also finances the import of equipment and commodities related to projects. In Bangladesh project aid relates to a large extent to the financing of projects included in the Annual Development Program (ADP). Technical Assistance, often seen as a part of project aid, refers generally to foreign aid for the improvement of the institutional capacity, transfer of technology, import of expertise (foreign consultants and technicians), and development of human resources by providing training facilities, including foreign fellowships.  

    The ODA or the Net official development assistance per capita consists of disbursements of loans made on concessional terms (net of repayments of principal) and grants by official agencies of the members of the Development Assistance Committee (DAC) to promote economic development and welfare in countries such as Bangladesh. The ODA has helped this country attain its status through several development project aid.

    Figure: Net ODA (Official Development Assistance) as a Percentage of Gross National Index (GNI) from 2006 to 2018 [1]

    Over the years from 2007-2018, the ODA has assisted Bangladesh to sustainably develop this economy. As illustrated in figure 1, the ODA as a percentage of GNI valued from 1.5-2%.[1]

    Bangladesh Development Aid
    Figure: Countries and Institutions that have provided Bangladesh with Aid in 2018 [2]

    In addition, the International Development Association, attributed around USD1500 billion in the year 2017-2018, making it a top donor for Bangladesh. Japan, followed with an amount mounting to an amount of USD1300+. Other countries and institutions were also a part of this list, but the International Development Association and Japan stood out in the category of hefty amounts.[2]

    This brings us to solve the burning inquiry, swimming around in everyone’s minds: where and how is this aid used? 

    Bangladesh Development Aid
    Figure: Percentage of where total ODA is used across different sectors in Bangladesh [3]

    63.45% of aid is contributed to mending and building economic infrastructure and services. This allowed Bangladesh to start a major project: the foundation for Padma bridge and mainly for Dhaka- the Moghbazar flyover- which effectively reduced traffic congestion in the commercial heart of Dhaka. Aid received by Bangladesh is mostly used in improving the infrastructure of this country. This not only includes major bridges or flyovers but mending and building new roads, institutions. [3]

    However, from time to time, Bangladesh still needs assistance in the food and grain department. In mid- 2020, the World Bank’s Board of Executive Directors approved $202 million in additional financing for the Modern Food Storage Facilities Project to increase the storage capacity of Bangladesh’s national strategic grain reserves by 535,500 tons for 4.5 million households. This project was aimed to help Bangladesh address food insecurity not only for the frequent climate-induced disasters but also for crises situations like the current COVID-19 pandemic. This aid is supporting the construction of eight public modern grain storage steel silo complexes for rice and wheat in eight different districts. On top of current construction work taking place in Ashuganj, Madhupur and Mymensingh, the additional financing will support the construction of rice silos in Dhaka, Narayanganj and Barisal, and wheat silos will be built in Chattogram and Maheshwarpasha. [4]

    This indispensable assistance is not limited to building rice silos only. Key development partners, namely the World Bank, Asian Development Bank (ADB), International Monetary Fund (IMF) and Asian Infrastructure Investment Bank (AIIB) have helped this sparse but dense country to combat the Covid-19 crisis. Development partners disbursed $7.2 billion throughout Fiscal Year 2019-20, compared to $6.5 billion during FY 2018-19. The disbursement growth is 11%, according to the preliminary report of the Economic Relations Division (ERD). In the beginning of FY 2020-21, the opening pipeline of foreign assistance reached $49.55 billion, compared to $47.26 billion in the same period the previous year. The partners provided the assistance that allowed Bangladesh’s economy to recover from the Covid-19 fallout. The World Bank and ADB have quickly disbursed loans for several health-related projects to allow the purchase of Covid-19 testing equipment which was essentially a necessity for this country. 

    The ADB endorsed $500 million for Bangladesh as budget support for a project called “Covid-19 Active Response and Expenditure Support Program.” Later, they also approved an additional $100 million in the “Covid-19 Response Emergency Assistance Project” for development in the health sector. In addition to this, the AIIB provided $250 million in budget support to Bangladesh in the preceding fiscal year.[5] The World Bank disbursed funds worth $250 million in budget support to Bangladesh, to help the country deal with the impacts of the pandemic. The agency also approved an additional $100 million for a health sector project. The IMF, also, has approved $732 million as emergency assistance to Bangladesh.[6]

    Bangladesh could be a meager island that still needs assistance in some departments, but it is a country that has established some core goals and have attained them, setting an exemplary standard. It is the country that surpassed the female labor participation more than that of India, Pakistan and to quote EU Parliamentarian Zdechovsky (DW, 2020)-“Bangladesh has made a lot of progress. They are not excellent, but they are still open to dialogue and make efforts for workers’ and women’s rights. If I compared them with Cambodia, Laos and Vietnam, Bangladesh is much more open,”. 

    References:

    LightCastle Analytics Wing

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.