Definition

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).[1]

Characteristics

• Foreign aid is the voluntary movement of resources from one

country to another.
• Foreign aid may require the transfer of professional advice and
training, commodities, or financial resources.
• The assistance can be used to advance the political aims of a
government, allowing it to obtain diplomatic recognition.

Types Of Foreign Aid

Foreign aid can take several forms and originate from various sources. It
can come as food, human resources, or even weapons, but with/from
agreements. The following are the most popular forms of international aid
agreements:

#1 – Bilateral Aid
It is the most common type of international aid, often provided by a
developed country to an underdeveloped one through a bilateral
agreement. One side determines the conditions for granting the money,
while the other agrees with them. Bilateral grants are the primary
sources of ODA. The two main reasons for this kind of agreement are
geopolitical (and hence, strategic) and to assist during a humanitarian
crisis such as an earthquake, tsunami, or other natural disasters.
#2 – Multilateral Aid
It includes funds raised by a group of countries via an international
organization to assist developing nations. Most of the time, the capital is
used to aid the world’s poorest countries, alleviate hunger, and improve
humanitarian conditions. One of the most influential organizations
engaged in multilateral aid is the World Bank.

#3 – Military Aid
Military aid, unlike bilateral and multilateral, is not about charity. It is all
about selling and buying weapons and signing defence contracts.
Countries amid a crisis frequently seek international assistance in
obtaining weaponry to combat their adversaries.

#4 – Voluntary Aid
Voluntary aid is a charity mainly carried out by non-governmental
organizations (NGOs) and is not necessarily linked to governments. The
well-known ‘Doctors Without Borders’ project, for example, sends
doctors to countries with poor health conditions to better the lives of the
residents.

#5 – Humanitarian Aid
It is often given to countries struck by a natural disaster. It is a more
short-term aid and involves several nations, NGOs, or private entities
donating resources and services during a crisis.
An example of this is the aid provided by the UN and many developed
countries during the Rohingya refugee crisis. Another example is the U.S.
government foreign aid spending over $1.5 billion on emergency health
and humanitarian needs in other nations during the COVID-19 outbreak.

#6 – Tied Aid
It works similarly to bilateral aid. However, the contract states that the
entire loan amount must be spent on a specified country. Most of the time,
it is either the donor country or its group of allies.
This type of aid is known as a form of protectionism. The government of
the developed country donates the capital to another. But the recipient
can only spend it on improving the economy of the donor.

# 7 – Project Aid
It intends to assist with specific projects. A country may, for example,
assist another in the construction of a school or a hospital in a region. In
this scenario, the funds help support the project. The funding may or may
not originate from a single source.

Impact in Bangladesh

Since its inception Bangladesh has been dependent on foreign aid for
initiating different development projects. The aid committed to
Bangladesh by donor countries and international agencies and
organisations since independence up to 30 June 1999 was $42.54 billion of
which 14.08% was food aid, 24.42% was commodity aid and 61.50% was
project aid. As a percentage of the country's GDP in current prices, foreign
aid was 9.3% of the GDP in 1975, 7.0% in 1982, 6.76% in 1993, 4.53% in 1996,
3.67% in 1998 and 4.22% in 1999. Bangladesh received a total of US $1035.2
million as aid in 1998/99 and US$ 1950.7 million in 2007/08. [2]

Although Bangladesh has gradually reduced its financing of the

ADP(Annual Development Plan) from the aid it receives, it is still investing
large amounts of aid into the public sector.185 In FY 2015-16 Bangladesh
spent US$11.12 billion on the ADP, with investment from domestic
resources versus foreign aid being US$8.22 billion and US$2.9 billion
respectively.[3]

As in most other developing countries, foreign aid in Bangladesh can

facilitate effective FDI(Foreign Direct Investment) inflows by being
invested in the relevant social and economic infrastructure. 82.49% of the
aid in Bangladesh is utilized as economic and social infrastructure aid.[3]
Therefore, aid contributes positively to the economic growth and
development of Bangladesh by improving the necessary infrastructure
for attracting an inflow of FDI.
There are several technical assistance projects that are aimed at
curriculum development, teachers’ professional development, and the
skills development of both the students and the labour force via both
formal and non-formal education including general education, technical
education and madrasha (Islamic) education. These human development
approaches contributed to achieving a better Human Development Index
(HDI),and 6 (out of 8) socioeconomic MDG targets achieved, including
poverty reduction, the net enrolment in primary education and reducing
child mortality.[3]

The aid package, covering both grants and loans, has undoubtedly
contributed to the development of the economy, but it is also leading to
growing indebtedness. The country's growing trade deficit and savings
investment gap, slow growth of revenues and rapid growth of current
public expenditure have contributed to the increase in public debt.

Benefits

The main foreign aid benefits are reducing hunger and poverty in
developing nations, assisting economies to recover from crises, and
establishing diplomatic connections with countries. It may also aid in the
promotion of a country’s culture and languages and boost its exports.
FDI promotes the economic growth of a country by contributing to
employment generation, meeting the saving-investment gaps, and via the
sharing of knowledge and managerial skills for forward and backward
linkages in the production sectors.

Drawbacks

As Kenan Malik puts,

Many rich nations receive more in interest payments from

recipient countries than they give in “aid”[4]
Critics often criticize foreign aid as being used as a tool for neo-
colonialism. Aid, in most cases, interferes in the politics of another
country. Aid recipients become more politically reliant on the countries
that provide it, leading to shifts in foreign policies and international
politics. Another problem is that it may increase inflation by injecting
money if the economy is not productive. There is also the issue of corrupt
governments and bodies interfering with the proper flow of aid.

Conclusion

Bangladesh, like any other developing state, can not deny foreign aid
completely as it will hinder the growth of the state. To minimize the losses
of foreign aid, there is no alternative of proper implementation. In other
words, the donor and receiver nations must ensure that the help reaches
the right and deserving people.

Reference
[1]HTTPS://WWW.BRITANNICA.COM/TOPIC/FOREIGN-AID

[2]HTTPS://EN.BANGLAPEDIA.ORG/INDEX.PHP/FOREIGN_AID

[3] ROLE OF FOREIGN AID IN FUNDING THE SDGS IN BANGLADESH: A GOVERNANCE

PERSPECTIVE

[4] THE GUARDIAN, SEPTEMBER 2,2018