Introduction Although Bangladesh’s economy has made significant strides in recent years, a negative image of the country persists throughout the world. In the popular imagination, Bangladesh conjures terms such as poverty, overpopulation, donor aid, natural disaster, political instability, failed state, and corruption. Some of these characterizations are accurate; others reflect the country's past, but none gives Bangladesh credit for the major social, economic, and political improvements that have taken place in recent years. The country's poor reputation has been an ongoing problem since independence. Over the past 10 years, however, the situation in Bangladesh has changed, even though world opinion has not. It will take time to change the world's perceptions of Bangladesh, and meaningful change must be accomplished through concrete actions, not simply hollow words from government officials. Bangladesh has been slow to integrate economically with the rest of the world because for most of its history, the country has been dependent on donor aid. Multilateral and bilateral assistance to Bangladesh has been much appreciated and generally utilized in an appropriate manner, but this has lead to a sense 1 | P a g e
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Introduction
Although Bangladesh’s economy has made significant strides in recent years, a negative image
of the country persists throughout the world. In the popular imagination, Bangladesh conjures
terms such as poverty, overpopulation, donor aid, natural disaster, political instability, failed
state, and corruption.
Some of these characterizations are accurate; others reflect the country's past, but none gives
Bangladesh credit for the major social, economic, and political improvements that have taken
place in recent years.
The country's poor reputation has been an ongoing problem since independence. Over the past 10
years, however, the situation in Bangladesh has changed, even though world opinion has not. It
will take time to change the world's perceptions of Bangladesh, and meaningful change must be
accomplished through concrete actions, not simply hollow words from government officials.
Bangladesh has been slow to integrate economically with the rest of the world because for most
of its history, the country has been dependent on donor aid. Multilateral and bilateral assistance
to Bangladesh has been much appreciated and generally utilized in an appropriate manner, but
this has lead to a sense of aid dependency that the government now is trying to change. "Trade
not aid" is the new mantra of the Bangladesh government, but the transition will not be easy, and
it certainly will take time to implement both domestically and internationally.
The meeting was informed that more foreign financing proposals are in the pipeline for the
committee approval.
This type of foreign financing will be helpful in keeping the foreign exchange rate stable and
impact positively on the balance of payment of the country, the committee hoped.
These foreign investments will help generate a significant number of jobs, they anticipated.
Should we rely on foreign aid or resort to domestic resources?
The governments of developing countries, including Bangladesh or any other country, do not
need to worry if they cannot gain the confidence of the donor countries to receive the desired
amount of foreign assistance. Probably it is better to receive less. Instead, it is more desirable to
formulate effective policies to mobilize resources from the domestic sources. The more we can
rely on domestic resources, the better.
It seems that the governments of almost all the less developed countries (LDCs) set out a target
to receive the highest possible amount of foreign aid, which may be in the form of grants, tied
aid, and loans (soft loan, tied loan, commercial loans, etc.). Expectedly, Bangladesh is not an
exception in this regard, too. Discussions are going on and meetings are being held in connection
of foreign assistance. The efforts of government of Bangladesh are going on in full swing to gain
confidence of the donor countries in order to acquire maximum possible foreign assistance. In
doing so, the governments of LDCs probably have at least two objectives in mind. Firstly,
foreign assistance fills up the resource gap. Secondly, it provides a proof for the creditability and
acceptability of the governments overseas. Thus there appears to have a serious effort on the part
of the government for gaining highest possible foreign funding by achieving confidence of the
donor countries. In this scenario one might ask: is it too bad if the government fails to attract a
sizeable amount of foreign assistance?
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The answer to the above question depends on the response to another question: do we need
foreign aid? Or, is foreign aid desirable? Apparently, this is an old question, but this is a
recurring question, and the issue emerges with new angles. And, there is no straight answer to
this. We should try to address this question from two perspectives: from the perspective of the
aid seekers, and from that of donors. From the aid seekers' point of view, foreign assistance is
justified if it is really to fill up the domestic resource gap (shortage of investible resources)
and/or foreign exchange gap (shortage of foreign exchange) in order to contribute to economic
development and the well being of the people. It is not advisable to shoulder the burden of
foreign assistance merely for political motives devoid of any positive economic agenda.
From the donors' point of view, we need to perceive their motives in extending foreign assistance
to LDCs. In principle, there may be two different motives and objectives for this: (i) assisting the
LDCs in their development, and (ii) satisfying the donors' own political and economic interests.
The former objective is no doubt a noble cause and the LDCs are welcome to receive foreign aid
that arises from such noble objective. The second motive often goes against the interest of the aid
receiving LDCs. But, now, the question arises: what is the motive of donors in reality?
Sometimes it is difficult to appreciate their motive(s) from the receiving end. It is not, however,
difficult for them to perceive what their own motive is. Let us, therefore, see what they have to
say about their own motive in providing foreign assistance. "The biggest single misconception
about the foreign aid programme is that we send money aboard. We don't. Foreign aid consists of
American equipment, raw materials, expert services, and food -- all provided for specific
development projects which we ourselves review and approve... Ninty-three per cent of AID
funds are spent directly in the United States to pay for these things. Just last year some 4,000
American firms in 50 states received $1.3 billion in AID funds for products supplied as part of
the foreign aid programme." [William S Graud, "Foreign Aid: How It Works; Why We Provide
It", Department of State Bulletin 59, No. 1537, 1968].
K Griffin's statement suggests that foreign assistance from the donor countries is not to help the
poor countries or to help fight poverty in LDCs: "In 1981 Israel's GNP per head was nearly 37
times larger than Ethiopia's. Israel received 90 times more foreign capital per head than Ethiopia"
('Doubts about Aid", IDS Bulletin 17, April 1986). Israel was 37 times richer than Ethiopia.
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Obviously, if poverty eradication was the objective, foreign assistance to Ethiopia should have
been 37 times more than Israel, but in practice it received 90 times less than Israel.
An important motive behind foreign assistance is the donor countries' political, diplomatic,
commercial and strategic interests. "... the major motives of aid donors are not to increase
efficiency and growth....... a primary motive is to promote the political, diplomatic, industrial and
commercial interests of the country offering foreign assistance. In practice foreign aid is doing
little to promote growth in the third world and less to alleviate poverty
.
In the end it appears to be doing little more than sustaining corrupt and often vicious regimes in
power." [K. Griffin, "Doubts About Aid", IDS Bulletin 17, April 1986]. "Donor countries give
aid primarily because it is in their political, strategic and/or economic self-interest to do so". [M
P Todaro, Economic Development in the Third World, Longman, New York, 1981]."Britain is
one of the most expert 'tyres' and even boast that two-thirds of her aid never actually leaves
Britain". [New Internationalist, October 1978]. "Canada requires that at least 80 per cent of aid
be spent on Canadian aids and services." [L Timberlake, Africa in Crisis, Earthscan, 1985]. "For
example, the Economic support fund of the US' Agency for International Development is
explicitly intended to provide support to countries on the basis of US's political and security
interests and about 40per cent of all US bilateral aid comes from this Fund." [K Griffin, "Doubts
About Aid", IDS Bulletin 17, April 1986]. "It remains widely agreed that donor countries have
utilized foreign aid largely as a political lever to prop up or underpin 'friendly' political regimes
in the third world countries." [MP Todaro, Economic Development in the Third World,
Longman, New York, 1981].
Thus, foreign assistance is rarely for the benefit of the poor countries. Instead, it may turn up as a
burden for them in the form of debt servicing. LDCs have to submit to the dictates of the donor
countries in international politics, and even in the domestic decision-making. Besides, a large
amount has to be paid every year in interest, not to speak of the principal. "In 1985 the Third
world's repayments of loans and interest amounted to US$30 billion more than the loans it
received in that year.
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In 1986 it received US$14 billion in aid, but it paid out US$54 billion on loan repayments plus
interest. Over the period 1982-1985 it paid back US$106 billion more than it received." [Ted
Trainer, Developed to Death, Green Print, London, 1989.].
These are some analyses of foreign assistance given by the experts of foreign aid from the donor
countries themselves. They do not provide any encouraging picture of foreign aid for assistance;
they are rather gloomy. Although exceptions may not be ruled out, the foreign aid is given
mostly for the self-interest of the donor countries. They establish their control over the poor
countries through foreign aid to interfere in their economic and political policy matters at the
domestic as well as international levels to serve the political and strategic interest of the donor
countries. Foreign assistance tends as well to serve their economic interest at the cost of the poor
aid receiving countries. A major share of the foreign assistance does not leave the donor
countries, or goes back to them for buying expertise services or materials. Debt servicing has
become a serious burden and problem facing the developing countries. So, do we need such
foreign aid? Not really. We don't. And, should we rely on such foreign assistance? No, we
shouldn't. Therefore, the governments of developing countries, including Bangladesh or any
other country, do not need to worry if they cannot gain the confidence of the donor countries to
receive the desired amount of foreign assistance. Probably it is better to receive less. Instead, it is
more desirable to formulate effective policies to mobilize resources from the domestic sources.
The more we can rely on domestic resources, the better. These are some analyses of foreign
assistance given by the experts of foreign aid from the donor countries themselves. They do not
provide any encouraging picture of foreign aid for assistance; they are rather gloomy. Although
exceptions may not be ruled out, the foreign aid is given mostly for the self-interest of the donor
countries. They establish their control over the poor countries through foreign aid to interfere in
their economic and political policy matters at the domestic as well as international levels to serve
the political and strategic interest of the donor countries. Foreign assistance tends as well to serve
their economic interest at the cost of the poor aid receiving countries. A major share of the
foreign assistance does not leave the donor countries, or goes back to them for buying expertise
services or materials. Debt servicing has become a serious burden and problem facing the
developing countries. So, do we need such foreign aid? Not really. We don't. And, should we
rely on such foreign assistance? No, we shouldn't. Therefore, the governments of developing
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countries, including Bangladesh or any other country, do not need to worry if they cannot gain
the confidence of the donor countries to receive the desired amount of foreign assistance.
Probably it is better to receive less. Instead, it is more desirable to formulate effective policies to
mobilize resources from the domestic sources. The more we can rely on domestic resources, the
better.
Bangladesh not dependent on foreign loan: Muhith
Finance Minister AMA Muhith Tuesday said in Parliament that Bangladesh is considered as a
less indebted country and in no way the country is dependent on foreign loan, reports UNB.
Replying to Golam Dastagir Gazi (Awami League-Narayanganj), he said currently, the amount
of foreign loan received by Bangladesh is US$ 22.30 billion, which is 22.3 percent of GDP.
Muhith further said that according to Bangladesh Bureau of Statistics (BBS), the population of
Bangladesh was 14.79 crore and per capita foreign loan was US$ 160 on June 30, 2011.
Since 1972 to December 31, 2011, Bangladesh received foreign assistance of $ 55.18 billion. Of
the amount, $ 31.55 billion was loan and $ 23.63 billion grant, he informed the House.
The Finance Minister said the country will require local investment of 30-35 percent of GDP to
achieve a growth of 7-8 percent or more. But in the present context, it is not possible to make
such huge investment from the internal revenue. In this situation, foreign assistance still plays an
important role, he observed. "Bangladesh needs foreign assistance. However, amount of the
foreign assistance is gradually decreasing according to the statistics of national income,'' Muhith
told the House.
In 1975-76, the amount of foreign aid was 11.17 percent of the national income, in 1979 it came
down to 9.57 percent, while the amount stood at 1.67 percent in 2010-11.
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Medium Term Macroeconomic Framework
Indicator Revised Projection
FY11 FY12 FY13 FY14 FY15 FY16
Export (% change) 38.0 14.5 14.5 14.5 15.0 15.0
Import (% change) 45.0 14.0 14.0 14.5 14.5 15.0
Remittances (blnUSD)
11.5 12.7 14.2 15.9 17.8 20.0
Current Account Balance (% of GDP)
-0.3 -0.2 -0.2 -0.3 -0.4 -0.6
ForexReserve (blnUSD)
10.7 11.6 12.9 14.5 16.1 17.6
Based on the high benchmarks of FY11 ,targets for export and import are set at a lower level
The growth target of Forex Reserve for FY12 (at11.6%) may not be achievable because—Growth in remittance flow may belower & import growth may be higher than anticipated
Medium Term Macroeconomic Framework
Indicator Revised Projection (as % of GDP)
FY11 FY12 FY13 FY14 FY15 FY16
Total Revenue 12.1 13.2 13.4 14.0 14.6 15.2
NBR Tax 9.6 10.2 10.8 11.4 12.0 12.6
Non-NBR Tax 0.4 0.4 0.4 0.4 0.4 0.4
Non-Tax 2.0 2.5 2.2 2.2 2.2 2.2
Total Expenditure 16.5 18.2 18.4 19.0 19.6 20.2
Budget Deficit &Financing 4.4 5.0 5.0 5.0 5.0 5.0
Domestic Financing 3.1 3.0 3.0 3.0 3.0 3.0
Banking System 2.3 2.1 2.2 2.2 2.2 2.2
Non Bank 0.8 0.9 0.8 0.8 0.8 0.8
Net Foreign Financing 1.3 2.0 2.0 2.0 2.0 2.0
Total budget expenditure set at Tk 1,63,589 crore—25.8% higher than RB of FY11, marginally lower than the 24.4% growth target for revenue earnings
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ADP has been targeted at 46,000 crore, accounting for 28.1% of total public expenditure (27.6% in the RB of FY11, 20.9% in FY11 according to CPD projection)
Budgetdeficithasbeenprojectedat5.0%ofGDPforFY12
High foreign financing target (79.8% growth over the revised budget of FY11) has been set with anticipated gross foreign aid flow of USD 3.3 billion
As the revised budget targets (revenue earnings and expenditures) for FY11 has been set on the high side, growth targets for FY12 would be higher when calculated over the actual figures of FY11
Real defining elements in the frame work are: revenue earnings (NBR and non-tax), subsidy and interest payments, ADP and foreign financing of fiscal deficit
Description RBFY11 BFY12 Growth
Crore Tk % of GDP Crore Tk % of GDP FY12 over RB FY11
Revenue Collection 95,187 12.1 118,385 13.2 24.4
Total -Expenditure 130,011 16.5 163,589 18.2 25.8
ADP 35,880 4.6 46,000 5.1 28.2
Non-ADP 94,131 12 117,589 13.1 24.9
Overall Deficit (Excl Grants):
34,824 4.4 45,204 5 29.8
Financing
Foreign Grants 4,224 0.5 4,938 0.5 16.9
Foreign Loan-Net 5,783 0.7 13,058 1.5 125.8
Foreign Loan 10,920 1.4 18,685 2.1 71.1
Amortization 5,137 0.7 5,627 0.6 9.5
Domestic Borrowing 24,817 3.2 27,208 3 9.6
Bank Borrowing (Net)
18,379 2.3 18,957 2.1 3.1
Non-Bank Borrowing (Net)
6,438 0.8 8,251 0.9 28.2
Total Aid Requirement (Net)
10,007 1.3 17,996 2 79.8
Total Aid Req (Net, bln US$)
1.4 - 2.5 - 79.8
Total Aid Req (Gross)
15,144 1.9 23,623 2.6 56
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Total Aid Req (Gross, bln US$)
2.1 - 3.3 - 56
Budget deficit (excl.grants) has been estimated at Tk 45,204 crore (5.0% of the GDP) for FY12
(Tk 34,824 crore in RB of FY 11,4.4% of GDP).
Sources of Deficit Financing
Financing of Budget Deficit in FY12
Share of domestic financing 60.2%
Tk 18,957 crore (69.7%) of the domestic financing will be from the banking system