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Foreign AID Scenery in

Bangladesh

Report
On

Foreign AID Scenery in Bangladesh


Submitted To:
Jannatul Ferdous
Senior Lecturer
Department of Business Administration
Prime University

Submitted By: Group - D

1.
2.
3.
4.
5.

Name
Md. Shakil Ahmed (L)
Sabuj Sheik
Tanvir Rahaman
Kamrul Hasan
Tania Khatun

ID
131020101069
131020101105
131020101074
131020101064
131020101084

Batch: 32nd
Bachelor of Business Administration
Department of Business Administration
Prime University
Date of Submission: 09 December, 2015

Letter of Transmittal
Date: 09 December, 2015
To
Jannatul Ferdous
Senior Lecturer
Department of Business Administration
Prime University
Subject: Submission of Report on Foreign AID Scenery in Bangladesh.
Dear Sir,
This a great pleasure to submit our report on "Foreign AID Scenery in Bangladesh. It was a
golden opportunity for our knowledge and practical experiences regarding the procedures and
functions while working. So, we firmly believe that, these knowledge and experiences will
help us in our professional life. We have tried hard to fulfill your expectations by sharing
details of each and every topic and avoiding unnecessary amplification of the topics.
Therefore, we will be very much glad to hear from you for further clarification.

Sincerely yours,

----------------------Md. Shakil Ahmed


ID: 131020101069
Batch: 32nd
Department of Business Administration.
Prime University.
On behalf of Group Members.

Declaration

I, Md. Shakil Ahmed, hereby declare that the report titled " Foreign AID Scenery in
Bangladesh is prepared by our group after completion of two week works from internet and
various books.
I also would like to confirm that, the report is prepared exclusively for academic
purpose not for any other purposes.

Md. Shakil Ahmed


ID: 131020101069
Batch: 32nd
Department of Business Administration.
Prime University.
On behalf of Group Members.

Executive Summary
Foreign aid plays an important role in Bangladesh. The pattern of foreign aid has undergone a
striking transformation in Bangladesh during the last four decades. The average yearly aid
totaled US$ 1.3 billion over the 40-year period. Although aid only accounts for roughly 2
percent of GNI, it constitutes almost 50 percent of the countrys annual development budget.
In fiscal year (FY) 2009/10, the amount of foreign aid disbursed was US$ 2.2 billion. As the
country developed, its reliance on these forms of aid gradually decreased so much so that, in
2000-2010, food aid and commodity aid together accounted for only 6% of total aid. The
share of project aid, on the other hand, steadily grew over the years, from 26% during 19711980 to 94% during 2000-2010. In FY 2009/10, project aid constituted 96% of total foreign
aid. The effectiveness of foreign assistance as a means to contribute to sustainable
development in the country has, at times, been the subject of debate. Different surveys and
assessments have come to the conclusion that the development assistance provided by a wide
range of partners could produce much better results should they be better coordinated, as well
as more harmonized and aligned with national priorities and systems. Similarly, it has been
pointed out that strong government leadership, as well as effective and efficient government
institutions are crucial to ensure that foreign aid is effectively utilized. Hence, improving aid
effectiveness is a joint responsibility of the Government of Bangladesh and its development
partners. This report presents the findings and recommendations of a review of policies and
procedures relating to aid management in Bangladesh. The assessment is based on the
analysis of relevant studies and other documents as well as discussions with a number of
government officials, involved directly or indirectly, with aid management. The Government
of Bangladesh (GoB) has taken considerable steps towards local implementation of the global
aid effectiveness agenda (Paris Declaration principles and Accra Agenda for Action) in recent
years. On the Government side, related initiatives are primarily spearheaded by the Economic
Relations Division of the Ministry of Finance through its Aid Effectiveness Unit (AEU).
Despite laudable achievements at the policy level, progress towards integrating aid and
development effectiveness considerations into the national development planning,
programming and budgeting process has been limited. One has to be realistic, however,
concerning the AEUs ability to instigate and manage the related change process, in the light
of the units capacity and institutional arrangements.

Table of Contents
Sl. No. Topic name

1.1
1.2
1.3
1.4
1.5
2.1
2.2
2.3
2.4
2.5
2.6
3.1
3.2
3.3

Page No.

Letter of Transmittal
Student Declaration
Executive Summary
Chapter- One: Introduction
Introduction
Origin of the report
Objectives of the Report
Methodology of the Report
Limitation of the Report
Chapter- Two: Foreign AID Scenery in Bangladesh
Definition of foreign Aid
Historical Background of foreign aid
Foreign AID Scenery in Bangladesh
Overview of Aid Flows to Bangladesh
Economic Effects of Foreign Policy of Bangladesh
Advantages and Disadvantages of Foreign Aid
Chapter- Three: Findings, Recommendations & Conclusion
Findings
Recommendations

3
4
5
7
8
9
9
9
9
10
11
12
17
18
20
22
23
24
25

Concluding Remarks
Reference & Bibliography

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27

CHAPTER - ONE

INTRODUCTION

1.1 Introduction
Foreign aid is one of the important sources to finance the development Program in
developing countries. Bangladesh is not exception to this. Foreign aid can be defined as the
economic assistance from one country to another country, intended either to provide
Humanitarian relief in emergencies, to promote economic development or to finance Military
expenditures (Black, 1997, pp.09). Aid may take the form of outright gifts of Money, which
may be tied to purchase from the donors, or untied and available for Expenditure anywhere.
Aid may also be given in form of food, commodity, project or Technical assistance. Aid fund
is divided into two parts, namely, grants and interest based loans. Bilateral aid is given
directly by a donor to a recipient country whereas multilateral aid is channeled through an
international organization, without direct contact between donors and particulars recipients.
Bangladesh is considered as one of the poorest and most densely populated countries in the
world. More than 154 million people lives in this country with 47 million poor people. The
current (2014) GDP of this country is $116.4 billion with per capita GDP $ 859. Bangladesh
is a low income country with yearly 6.03 percent GDP growth and most of its income is
generated from the industrial sector followed by agricultural sector (GOB 2013). The life
expectancy at birth its people is only 65 years, and the adult literacy is only 57.91 percent
(BBS, 2010). Different democratic governments have been ruling this country since 1991,
namely, BNP (Bangladesh Nationalist Party) government for two terms (1991-1995, 20022006), BAL (Bangladesh Awami League) government for two terms (1996-2001, 20092012). While a Military government ruled this country for eight years (1982-1990).
Bangladesh is a foreign aid recipient country since its independence in 1971. It receives
foreign assistance mainly to finance the budget or trade deficit and the annual development
program (ADP) over the period of time. Moreover, it also gets external assistance in form of
food and commodity aid for various purposes in different years from the donors. Mainly for,
reconstruction of the newly independent country, to overcome the various natural disasters
such as flood, famine, cyclones etc. Over the period of time, this is a topic of intense debate
that, whether the foreign aid has any positive effect on the economic development of the
recipient countries. The aim of this paper is to examine the effect of foreign aid on the
economic growth of Bangladesh.

1.2 Origin of the report:


For student of BBA, it is a requirement after the attending all the required courses the
Foreign AID in Bangladesh, which is a part of the program. To fulfill this requirement
we work as an intern in Foreign AID. Besides, it helped us a lot of to compare theoretical
knowledge with internet used. A PART FROM THAT, I proposed the Foreign AID in
Bangladesh and my institution supervisor at Prime University, Jannatul Ferdous, duly
approved it.

1.3 Objectives of the Report:


The objectives of the study are as follows:
To know about the Foreign AID.
To know about the Historical Background of Foreign AID in
Bangladesh.
To know about the Foreign AID Scenery in Bangladesh.
To know about the Economic Effect of Bangladesh through Foreign
AID.
To learn about the advantages and disadvantages of Foreign AID.

1.4 Methodology:
There are two types of methodology .it are given below:
i) Primary
ii) Secondary

Discuss are given below:


i) Primary: We are not use in primary methodology.
ii) Secondary: We are using secondary methodology such as internet, books, different website
etc.

1.5 Limitation:
While preparing the term paper, we had to face some difficulties such as:
*Lack of experience to prepare a term paper about Foreign AID Scenery in Bangladesh.
*Lack of sufficient knowledge
*lack of information and documents to support our study.

CHAPTER - TWO
Foreign AID Scenery in Bangladesh

10

2.1 Definition of foreign Aid:


Foreign aid the international transfer of capital, goods, or services from a country or
international organization for the benefit of the recipient country or its population. Aid can be
economic, military, or emergency humanitarian (e.g., aid given following natural disasters).
Foreign aid can involve a transfer of financial resources or commodities (e.g., food or
military equipment) or technical advice and training. The resources can take the form of
grants or concessional credits (e.g., export credits). The most common type of foreign aid is
official development assistance (ODA), which is assistance given to
promote development and to combat poverty.

Foreign aid can be defined as the Economic assistance from one country to another country,
intended either to provide Humanitarian relief in emergencies, to Promote economic
development or to finance Military expenditures.
Aid may take the form of outright gifts of Money, which may be tied to purchase from the
donors, or untied and available for Expenditure anywhere. Aid may also be given in form of
food, commodity, project or technical assistance. Aid fund is divided into two parts, namely,
grants and interest based loans. Bilateral aid is given directly by a donor to a recipient
country whereas multilateral aid is channeled through an international organization, without
direct contact between donors and particulars recipients.

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2.2 Historical Background of foreign aid:


Over the past 100 years, foreign aid structures that began with European colonialism have
become tied to shifting economic and political interests, as well as a growing humanitarian
movement. Investigates the competing motives behind foreign aid, and how emerging global
powers are changing the game.
An ideological battle has been playing out for decades over whether foreign aid should be
used to facilitate economic growth, or to provide programs that directly meet peoples basic
needs. As new global powers emerge as donors, a third 'horizontal' structure is now being
discussed based on mutual self-interest.
Rich countries started giving money to poorer countries in the 19th century, and by the 1920s
and '30s countries like Germany, France and Britain were providing regular aid to their
colonies in Africa, Latin America and Asia. Colonial powers used their money to build
infrastructureports, roads, railwaysand wealthy American industrialists were also
involved in development aid through the Ford and Rockefeller Foundations.
Even after the colonies gained their independence, foreign support continued to focus on
economic development.
'There was the idea that countries had to catch up, that Western Europe and countries like
Australia, Canada and North America were developed... they were the goal that everybody
else had to reach,' says Ms Eyben. During the Cold War, dramatic shifts in political,
economic and moral allegiances emerged.
People began to talk about poverty, and they began to talk about why are people poor, and
whether it was possible to have economic growth that was more equitable, economic growth
that focused on reducing poverty rather than just assuming that if you had growth everybody
would ultimately benefit.
Within a few years the world had split into what were called three worlds: the first world,
Western democratic countries; the second world which was the Soviet Union and its
Communist satellites; and then what became known as the third world, which were the
former colonies and countries that had come under imperial influence, which were now all
independent and that formed themselves into the non-aligned movement in the early 1950s,
Ms Eyben says.
In the post-war decades, the United States became the worlds biggest aid donor, starting with
the Marshall Plan to help Europe rebuild. As the Cold War developed, the two super powers
and their allies would use aid to encourage political allegiances.
Howard White, executive director of non-profit organization 3ie, says the assumption during
this period was that the old colonial powers would gradually phase out their direct financial
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aid as colonies became independent and multilateral organizations like the UN, the World
Bank and the International Monetary Fund took over development work.
It was really through the 1960s that the aid programs started to formulate and take shape and
become a more definite commitment. That's where you see the start of the evolution of a 0.7
per cent target of countries giving 0.7 per cent of national income in development assistance,
says Mr White.
The northern European donors like Sweden, which historically hadn't had colonies, so it
didn't have the reason to be giving money to ex-colonies in the way that Britain and France
did, started to recognize the need for aid on humanitarian grounds and so also adopted these
targets and started to develop aid programs in particular focus countries. And it took off from
there.
At the end of the 1960s, ideas about the purpose of aid began to change under the influence
of Robert McNamara, who became head of the World Bank in 1968. He promoted the idea of
using donor-funded programs to meet people's basic needs in health, education, water and
sanitation.
That was a decade where people began to talk about poverty, and they began to talk about
why are people poor, and whether it was possible to have economic growth that was more
equitable, economic growth that focused on reducing poverty rather than just assuming that if
you had growth everybody would ultimately benefit. That discussion about what kind of
growth is one that is alive and very well today as well, it's a constant theme in discussions
about development, says Ms Eyben.
In the 1980s basic needs disappeared off the agenda as a result of the global recession that
was a result of the oil shock of the 1970s. Many developing countries were heavily indebted
as a result of the recession, and donor countries lent them money in order to manage their
debts, but on the basis of them having to restructure their economies, and to particularly stop
spending so much money on social services. This was called structural adjustment, and it's
very similar to what is happening in Europe at the moment with what we are calling austerity
programs.
The collapse of the Soviet Union in 1991 and the end of the Cold War led to a return to
democracy in many countries and the increasing participation in development projects by
both non-government organizations and wealthy philanthropists like Bill Gates and George
Soros during the 1990s. But many poor countries were still staggering under impossible-torepay debt.
Steve Radelet, an academic and former chief economist for the US Agency for International
Development, worked in the US Treasury on international debt relief deals from 1999
through 2002. He says that ironically the first countries that were able to get out from under

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their debt burdens were the ones that had borrowed from commercial markets, not from aid
agencies.
Those that had borrowed from Citibank and other commercial banks were able to do deals in
the late '80s and early '90s under a program called the Brady bonds were essentially the
commercial banks would swap old debt for new debt at 70 per cent of the face value or 50 per
cent or 30 per cent, it varied by country, says Mr Radelet.
The commercial banks pretty quickly figured out that they weren't going to get fully repaid
and were willing to go in and do a deal where they would accept a write-down in order to get
some things repaid. But for loans that were made by donor governments, and by the World
Bank and the IMF, many more years went by until those donors were willing to recognize
that they were going to have to write their debts down.
Finally in 1998 the big movement forward happened when the World Bank and the IMF
finally decided that it did not make sense for them to demand repayment of these old loans
because countries were really stagnating under the weight of the burden of repaying it.
Most of the really poor countries that had built up a lot of debt have now had that debt
forgiven. There's really only a few countries remaining with large debt burdens, and they are
tough cases. Somalia is one, Sudan is another, Zimbabwe is another, and the progress on debt
relief there is frankly waiting for a transition to a government where the donor countries are
more willing to move forward with debt relief.
Over the past decade, more attention has been paid to working out the most effective way to
spend aid money. This has included the rise of impact evaluation, a set of methodologies that
allows agencies to determine how effective development programs are for the people they are
trying to reach.
The shift in global power relations that has occurred over the past 10 years has also been
playing out in aid relationships. Some former aid recipient countries have now become
important economic and political powers in their own right. These rising powers have a
different approach to aid, which they describe as development cooperation on the basis of
mutual self-interest. One of the most prominent examples of this is the relationship between
China and Africa, says Ms Eyben.
China provides a lot of economic infrastructure and support for social development, and in
return becomes the privileged buyer of African raw materials for China's growing economy,
she says.
On the philosophical side, which is important here because it influences how people think
about what they are doing, these new sovereign powers stress that the corporation is
horizontal, that it's not the old vertical relationship that the former colonial powers have with
their erstwhile colonies who are now aid recipients.
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While this is an attractive philosophical position, a number of observers believe is not much
different from what the old donors were doing in the 1960s when they emphasized support
for economic development.
When development is primarily understood as economic growth, then most of the money
will go on supporting the growth of markets, supporting the infrastructure that helps markets
work better, says Ms Eyben.
When the emphasis shifts to development being understood as greater human wellbeing,
then donors have been spending more money on supporting the strengthening of civil society,
supporting the attainment of gender equality, putting more money into education and health
and so on and so forth.

Top 10 aid recipient countries (2012)


Main article: List of countries by foreign aid received

Foreign aid received in millions of US dollar

Country

2012

Afghanistan

6,725.0

Vietnam

4,115.7

Ethiopia

3,261.3

Turkey

3,033.1

Congo, Dem. Rep.

2,859.3

Tanzania

2,831.8

15

Foreign aid received in millions of US dollar

Country

2012

Kenya

2,654.0

Cte d'Ivoire

2,635.6

Bangladesh

2,152.0

Mozambique

2,096.9

Top 10 aid donor countries (2013)


Main article: List of governments by development aid
Official development assistance (in absolute terms) contributed by the top 10 DAC countries
is as follows. European Union countries together gave $70.73 billion and EU Institutions
gave a further $15.93 billion.

Foreign aid received in millions of US dollar

Country

European Union

2012

$86.66

16

Foreign aid received in millions of US dollar

Country

2012

United States

$31.55

United Kingdom

$17.88

Germany

$14.06

Japan billion

$11.79

France

$11.38

Norway

$5.58

Netherlands

$5.44

Canada

$4.91

Australia

$4.85

2.3 Foreign AID Scenery in Bangladesh:


Bangladesh is considered as one of the poorest and most densely populated Countries in the
world. More than 154 million people lives in this country with 47 million poor people. The
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current (2014) GDP of this country is $116.4 billion with per capita GDP $ 859.Bangladesh is
a low income country with yearly 6.03 percent
GDP growth and most of its income is generated from the industrial sector followed by
agricultural sector (GOB 2013). The life expectancy at birth its people is only 65 years, and
the adult literacy is only 57.91 percent (BBS, 2010).
Different democratic governments have been ruling this country since 1991, namely, BNP
(Bangladesh Nationalist Party) government for two terms (1991-1995, 2002-2006), BAL
(Bangladesh Awami League) government for two terms (1996-2001, 2009-2012). While a
Military government ruled this country for eight years (1982-1990). Bangladesh is a foreign
aid recipient country since its independence in 1971. It receives foreign assistance mainly to
finance the budget or trade deficit and the annual development program (ADP) over the
period of time .
The standard definition of foreign aid comes from the Development Assistance Committee
(DAC) of the Organization for Economic Cooperation and Development (OECD), which
defines foreign aid (or the equivalent term, foreign assistance) as financial flows, technical
assistance, and commodities that are (1) designed to promote economic development and
welfare as their main objective (thus excluding aid for military or other non-development
purposes); and (2) are provided as either grants or subsidized loans,
Foreign Aid is any capital inflow or other assistance given to a country which would not
generally have been provided by natural market forces. In Bangladesh, foreign aid serves to
bridge the gap between savings and investments and make up the deficits in the balance of
payments. Foreign aid is a major means of financing the country's economic development.
Economic literature generally classifies foreign aid into four main types. Firstly, the longterm loans usually repayable by the recipient country in foreign currency over ten or twenty
years. Secondly, the soft loans repayable in local currency or in foreign currency but over a
much longer period and with very low interest rates. The softest are the straight grants often
given to the less developed countries. Sale of surplus products to a country in return for
payment in the country's local currency, e.g., food aid from the USA under PL-480, is the
third type and finally, the technical assistance given to the developing countries comprises the
fourth type of foreign aid.
The Bangladesh Aid Group, an international consortium of donors, comprising of 14 affluent
nations and 12 international development agencies, meet every year to review development in
the economy of Bangladesh, and as such, aside from prescribing courses of action for the
economy, also takes decision on the amount of aid. Members of the Aid Group include
Australia, Belgium, Canada, Denmark, France, Finland, Germany, Italy, Japan, Netherlands,
Norway, Sweden, Switzerland, UK, USA, International Development Association (IDA),
Asian Development Bank (ADB), European Union EU, International Fund for Agricultural
Development (IFAD), UN agencies, the Ford Foundation and Asia Foundation

2.4 Overview of Aid Flows to Bangladesh:

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Bangladesh is the 22nd largest recipient of foreign aid globally (based on 2010 information
obtained from the website, Globalhumanitarianassistance.org). Bangladesh is one of the 10
most vulnerable countries to natural disasters, due to climate change impacts as well poor
preparedness and lack of infrastructure to mitigate or respond to these impacts. The country
hosts the worlds largest humanitarian aid community, with 12 UN agencies, over 70
international NGOs, over 2,000 locally registered NGOs, and over 60,000 community based
organizations. Overall official development assistance (ODA) commitments to Bangladesh
were $5.38 billion US Dollars and net ODA received was $2.67 billion US Dollars (OECD
2013). Net ODA received per capita was $14 US Dollars (World Bank 2012). According to
2013 OECD DAC data, the largest donors in Bangladesh in 2013 were Japan (32%), the
IDA/The World Bank (30%), the IMF (7%) and the Asian Development Bank (6%).20 Other
bilateral donors were Canada (3.6%), the U.S. (3.5%), and the Netherlands (1.9%). From a
10-year perspective the largest donors to Bangladesh were IDA, followed by Japan, the Asian
Development Bank Special Funds and the United Kingdom.

Table 1: Overview of Aid to Bangladesh by top 10 Donor, ODA Gross Disbursements in


USD$ millions (OECD/DAC Statistics)
19

Donor

2008

2009

2010

2011

2012

IDA

836.8

328.5

352.4

364.7

703.9

Japan

886.9

128.6

142.5

201.6

449.5

286.0

288.3

356.8

253.1

250.7

229.9

368.6

310.8

United States

134.6

99.8

151.5

142.9

215.7

IMF

140.0

194.5

131.9

188.6

159.1

128.2

Australia

45.1

41.4

50.3

79.3

120.8

Germany

65.9

73.1

65.0

77.1

81.6

Netherlands

84.7

70.3

78.6

77.7

66.5

TOTAL

2,501.7

1,124.2

1,545.0

1,759.4

2574.0

AsDB Special 0
Funds
United
Kingdom

(Concessional
Trust Funds)
EU
Institutions

20

2.5 Economic Effects of Foreign Policy of Bangladesh:


The foreign assistance received by Bangladesh is constituted mainly by the grants and
interest based Loans. During 1971 - 2012 periods, loans occupied the large portion (58.22
percent) of the total external assistance while grants made up 41.78 percent of all foreign
assistance. Conversely, the share of grants and loans in total aid changed over time. In the
first decade after Independence (1971-1980), the amount of grants was more than half (51
percent) of all foreign aid and this share goes down consistently over the next three decades
(1981-2012) and recorded as less than one third (31 percent) of total aid during 2001-2012.
Alarmingly, the share of loans in total aid rose from 49 percent in 1971 to 69 percent in 2012
respectively. Bangladesh receives its external assistances mainly in three forms as food aid,
commodity aid and project aid accordingly. More than two-third (67.7 percent) of the total
aid was disbursed in the form of project aid during 1971-2012 period while commodity and
food aid accounted for 21 percent and 12 percent respectively. Likewise share of LoanGrants, the shares of the three forms of aid have changed over time. In the first decade (19711980) after independence, the donors provided the highest amount of Commodity aid (42
percent) and food aid (32 percent) for the poor people of Bangladesh. Over the period of time
the dominant figure of Commodity and food aid steadily declined due to the reduction of
dependency on these forms of aid and both together recorded as only 5.17 percent of total
assistances in 2001-2012. On the contrary, the share of project aid progressively increases
over the years, from 26 percent during 1971 to 94.83 percent in 2012. Bangladesh spends the
foreign assistance in almost twenty sectors including agriculture, rural development, water,
oil, gas, mineral resources, transport, education, planning, power, industry, infrastructure and
health sector. Most of the aid has been spent in power, education, transport, rural
development and agriculture sector respectively.
Being one of the 48 less developing countries Bangladesh has always been an aid dependent
country. Because of such dependency, BFP, despite the much vaunted rhetorics for economic
diplomacy, has so far not been able to be independent in the real sense of the term. But
economic diplomacy has remained the major foreign policy concern through successive
regimes; and such concern has become more pressing in the post-cold war period.
The net result of economic diplomacy over the years is that Bangladesh has received around
$ 24 billion worth of external aid and the countrys dependency amounts to 87% of the annual
development budget.
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The enormity of aid dependence impacts negatively on the type of foreign policy a country
pursues. The results of analysis were the states with highest level of economic development
tended to be active-independent states, those with intermediate levels of development tended
to be transitional state; and those with low level of development tended to be inactivedependent states. Bangladesh fits into a category somewhere in between the latter two
types. But despite the paramount importance attached to economic diplomacy by Bangladesh,
this is perhaps the foreign policy sector that is characterized by largest number of disquieting
news items.
The economic imperatives compelled Bangabandhu to diversity foreign policy and make it
donor-oriented. Consequently, the western developed countries emerged as the dominant by
31% by the international organizations. The share of the socialist bloc and India stood at
21%. The OPEC share stood at a meager 5%.
During the Zia regime Bangladesh was successful in inducting China as a major donor; and
augment aid inflow from the Western and OPEC sources. The average annual commitment of
aid was $1218 million as compared to $828 million during the previous regimes. The
proportion of aid disbursement was 76% as against 66% during the previous regime.
On top of everything, the recently released least developed countries report indicate that
Bangladeshs growth rate was lower than regional standard. In 1995, the rate was 4.5 percent
which increased to 4.7 percent growth rate and Cambodia 6 percent.
Lower growth rate certainly suggest lower development rate. In appears therefore that
economic diplomacy over the years has been successful in making Bangladesh overwhelming
an aid dependent which however are the major concern of BFP.
The recent overtures made by the Hasina Government for sub regional cooperation in South
Asia and becoming a member of BISTEC are in reality geo-economical means to geopolitical ends.

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2.6 Advantages and Disadvantages of Foreign Aid:


Every year billions of dollars are given as aid to under-developed nations who are seeking
help with their economic growth. Giving aid to foreign countries does consist of many
advantages and disadvantages of which are:-

Advantages:
Economic growth is a main advantage. Nations that receive money invest it into their
economy which helps to create more jobs for the people, better infrastructure, and stabilize
their economy. Nations such as China GDP growth rate increased 9.65% from the investment
of the foreign aid into their nations economy. Foreign aid has other advantages, such as
fighting hunger, saving lives and providing civilians with shelters, clean water and medicine.
Pharmaceutical drugs are dispensed free or subsidized to that in need and training is given to
doctors and nurses which will ensure they know the correct way to deal with a patients
health. Foreign aid is also a benefit the donor. Donor nations are able to control the funds that
they give to the nations by asking for or requiring certain gains in return such as use of
military bases and other resources the nation is in need of. The gains in return create a strong
economical, cultural and or political bond between recipient and donor nations.

Disadvantages:
A disadvantage of foreign aid however is an increase in dependency from recipient nations.
Governments that receive aid become dependent on steady flow so that while still being able
to support the people of its nation, they can begin putting the money into the sectors of the
country which need the assistance. Corruption is a big disadvantage of foreign aid. Aid
money that is being given to government officials is being put straight into their own pocket
rather than in the country to solve its problems. (In this case the only people who benefit from
the money are government officials rather than the nation and its people).

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CHAPTER - THREE

Findings, Conclusion and


Recommendations

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3.1 Findings:
The findings of the study are as follows:
Bangladesh depends on external aid to finance the development budget. This research
concludes that, foreign aid has positive effect but diminishing return on the economic growth
of Bangladesh. Aid mobilizing and executing institutions of Bangladesh including public
administrations have capacity constraints, mainly for, poor structure and planning, corruption
and political instability.
The government must take initiative to overcome these shortcomings to gain the maximum
and efficient output from aid.
Foreign aid has positive effect on the economic growth of Bangladesh

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3.2 Recommendations:
Foreign Aid is declining over the period of time. It has 7.38 percent, 4.05 percent, 1.8 percent
and 4.43 percent contribution to GDP of Bangladesh during 1980-1990, 1991-2001, 20022012 and 1980-2012 correspondingly. The square term depicts that, the return of aid is
diminishing for a country having the absorptive capacity constraints. Bangladesh is not
exception to this.
If more nations monitor and control their funds and help government officials with placing
the money in the useful sectors, it will decrease the chance of corruption in the country.
Furthermore it will eradicate dependency of aid by the recipient nations.
International Aid must have long-term benefit for poor countries. Otherwise, it is only the
question of time when developed countries would not be able to maintain growing number of
people in the third world.

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3.3 Concluding Remarks:


This study explores that foreign aid has positive role on the economic growth of Bangladesh
and it is statistically significant in only two cases out of eight cases. This finding is not
statistically significant for the entire period (1980-2012). The estimated results also indicate
that, due to the lower level of capacity constraint of Bangladeshi institutions to use the
foreign aid effectively, the aid provide diminishing returns in Bangladesh. Foreign aid can
contribute to the national economy more effectively, if the Bangladesh government utilizes its
aid funds more efficiently by reforming its institutions and policies.

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Reference & Bibliography:


Quazi, Rahim M. (2005), Effects of Foreign Aid on GDP Growth and Fiscal Behavior: An
Econometric Case Study of Bangladesh, the Journal of Developing Areas , 38(2) .
Ministry of Finance, Flow of External Resources to Bangladesh, Economic Relation
Division Government of Bangladesh, Dhaka, 2007.
Centre For Policy Dialogue, Revisiting Foreign Aid: A Review of Bangladesh
Development 2003, University Press Ltd, Dhaka, 2004
ODI, Support Models for CSOs at Country Level Bangladesh Country Report, Oslo, August,
2007.
Allocation of Business among Different Ministries and Divisions, Schedule I of the Rules of
Business 1996 (Revised up to February 2009), Cabinet Division, Government of Bangladesh.
Bangladesh Harmonization Action Plan, PRS-HAP Cell, Economic Relations Division,
Government of Bangladesh, August 2006.
http://global.britannica.com/topic/foreign-aid
https://en.wikipedia.org/wiki/Aid
http://www.oecd.org/newsroom/aid-to-developing-countries-rebounds-in-2013-to-reach-anall-time-high.htm
http://vahesgoodblog.blogspot.com/2012/05/advantages-and-disadvantages-of-giving.html
http://www.econstats.com/weo/CBGD.htm

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