In 2021, Bangladesh is not only a country that is home to more than 163 million nationals, with 1,265 people living per square kilometer, but it is also a country with an income per capita of $2,227. It is an economy that promises growth and development and possible graduation from its current Least Developed Country Status by 2024, but to what extent is this country in hock to foreign aid?
Foreign aid refers to any type of assistance that a country or organization receives in the form of a gift, grant, or loan. Foreign aid to Bangladesh is classified based on terms and conditions, source, and use. The various types of foreign aid Bangladesh receives are loans, grants, bilateral aid, multilateral aid, 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 which are 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.
Disbursement of this foreign aid to Bangladesh came from members and non-members of the Development Assistance Committee (DAC). One example of this is the Net Official Development Assistance (ODA) which is designed to promote the economic development and welfare of developing countries. This aid was either made as a grant or as a loan on concessional terms and it assisted Bangladesh to graduate from its Lower Middle-Income country status in 2015. The ODA expended aid to Bangladesh for various projects that helped to promote economic development and welfare. Over the years from 2006-2018, the ODA has assisted Bangladesh to sustainably develop this economy. As illustrated in Figure 1, the ODA as a percentage of GNI valued from 1.4-2%.
In addition, key players such as the International Development Association contributed around USD 1500 million in the year 2017-2018 to aid the development of this country. Japan assisted Bangladesh with an amount amounting to more than USD 1300 million. Other countries and institutions were also a part of this list, as illustrated in Figure 2 but the International Development Association and Japan stood out in the category of hefty amounts.
This brings us to solve the burning inquiry: where and how is this aid used?
63.45% of aid is contributed to build and manage the maintenance cost of economic infrastructure and services. This allowed Bangladesh to start two major projects – the foundation for Padma bridge and the Moghbazar flyover – which effectively reduced traffic congestion in the commercial heart of Dhaka.
But from time to time, Bangladesh still needs assistance in the agricultural department. In mid-2020, the World Bank approved an additional USD 202 million for financing 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 like the current COVID-19 pandemic. This aid supported the construction of eight public modern grain storage steel silo complexes for rice and wheat in eight different districts. On top of the existing construction work in Ashuganj, Madhupur, and Mymensingh, this additional financing will support the construction of rice silos in Dhaka, Narayanganj, and Barisal, and wheat silos will be built in Chattogram and Maheshwarpasha. However, recent assistance is not only limited to agricultural programs only. Key development partners, such as the World Bank, Asian Development Bank (ADB), International Monetary Fund (IMF), and Asian Infrastructure Investment Bank (AIIB) have helped Bangladesh to combat the COVID-19 crisis.
Development partners disbursed USD 7.2 billion throughout the Fiscal Year 2019-20, compared to USD 6.5 billion during FY 2018-19. The disbursement growth is 11%, according to the preliminary report of the Economic Relations Division (ERD). At the beginning of FY 2020-21, the opening pipeline of foreign assistance reached USD 49.55 billion, compared to USD 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 a necessity for this country.
The ADB endorsed USD 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 USD 100 million in the ‘COVID-19 Response Emergency Assistance Project’ for development in the health sector.
In addition to this, the Asian Infrastructure Investment Bank (AIIB) provided Bangladesh with USD 250 million in the budget to support this economy in the preceding fiscal year. The World Bank disbursed funds worth USD 250 million in budget support to Bangladesh, to help the country deal with the impacts of the pandemic. The agency also approved an additional USD 100 million for a health sector project. The IMF, also, has approved USD 732 million as emergency assistance to Bangladesh.
Bangladesh could be a country that still needs assistance in some departments, but it is a country that has established some core goals and has 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 compare them with Cambodia, Laos, and Vietnam, Bangladesh is much more open“.
Radya Yousuf, Business Analyst, and Farah H. Khan, Senior Business Consultant & Project Manager, at LightCastle Partners, have prepared the write-up. For further clarifications, contact here: [email protected].
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