Professional Documents
Culture Documents
Bernhard G. Gunter
President, Bangladesh Development Research Center (BDRC) http://www.bangladeshstudies.org
I. Introduction
This paper examines past and future aid allocations to Bangladesh as well as Bangladeshs debt sustainability, paying special attention to recent international debt relief initiatives and the possible fast-tracking of Bangladeshs poverty reduction strategy to achieve the Millennium Development Goals (MDGs).
This is a summary of a paper jointly co-authored by Dr. Bernhard G. Gunter (BDRC), Dr. A. F. M. Ataur Rahman (NSU), and Dr. Jesmin Rahman (IMF). The paper had been presented at the Conference on Bangladesh in the 21st Century, Harvard University, Boston, MA (June 13-14, 2008) as well as at UNDP Bangladeshs Policy Dialogue Series in Dhaka on August 19, 2008. The full paper is available upon request, please contact Dr Gunter at: president@bangladeshstudies.org.
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about 40 million people living below $1-a-day in Bangladesh. Hence, Bangladesh has ample needs for more aid. However, reviewing the aid data as provided by the Organisation for Economic Co-operation and Development (OECD) (2007), Bangladeshs share of aid provided to all developing countries has decreased considerably during the last 20 years, from 4.4 percent in 1987 to 1.2 percent in 2006, see Figure 1. Preliminary estimates for 2007 indicate that the share of aid allocated to Bangladesh has further decreased, possibly dropping below one percent of net official development assistance (ODA) to all developing countries.
F ig u r e 1 :N e tO D A to B a n g la d e s h ,1 9 8 7 2 0 0 6 (a s % o f N e tO D A to a lld e v e lo p in g co u n tr ie s )
5 .0 4 .5 4 .0 3 .5 3 .0 2 .5 2 .0 1 .5 1 .0 0 .5 0 .0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Aid flows to Bangladesh may increase temporarily in 2008 due to the provision of emergency aid; yet, the financial implications of recent debt relief initiatives (see Gunter, Rahman, and Wodon (2008)) are likely to cause a further decline in aid allocations to Bangladesh. While it is well known that aid flows are highly volatile and that aid flows are declining once a country has reached a certain level of income per capita, the trend over the last 20 years is not due to aid volatility, nor has Bangladesh reached yet an income per capita level that would justify the decline in aid. What is clear is that the recent aid allocation mechanism has been biased against Bangladesh. The degree to which Bangladesh has been discriminated in terms of aid allocation becomes obvious if looking at aid provided in per capita terms. First, while aid per capita amounted to only US$9 for Bangladesh in 2005, it amounted to an average of $197 for the 37 countries with populations of less than one million. This huge discrepancy is even less comprehensible if considering that Bangladeshs gross national income (GNI) per capita (US$470) was less than one sixth of the income per capita of the 37 small states (US$3,055) in 2005. Second, even if comparing Bangladesh with more populous countries, there remains a huge discrepancy in aid per capita levels. Among more populous countries with similar income per capita levels, Bangladesh receives currently the second lowest amount of aid per capita, amounting with $9 per capita to about one fifth of per capita aid provided to comparable African countries.
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IV.
Key Recommendations
First, taking Bangladeshs record of achievement into account, Bangladesh should be fasttracked for a rapid scale-up of aid, whereby the development agenda and development policies need to be designed based on a broad majority of domestic stakeholders. Second, taking recent efforts of making aid more effective into account, we should be more optimistic that aid can be effective as well as work together to make it more effective, instead of continuing to be pessimistic about the impact of aid. Third, while aid critics have voiced concerns about negative macroeconomic implications of a scaling up of aid, experience has shown that there is no evidence for such concerns for low-income countries. Fourth, given that the Bangladeshi government pays currently more than US$1.5 billion a year in external debt service to rich countries and multilateral institutions like the World Bank, and is expected to pay this amount for the next two decades, the Bangladeshi government should push the donor community to get at least all its debt to the World Bank and the IMF canceled (as many other LDCs already got such debt relief) and as Bangladesh has far more urgent needs to use these resources for poverty reduction. Fifth, the Bangladeshi government should avoid to further substitute external borrowing with domestic borrowing as domestic borrowing has far higher fiscal implications than external concessional borrowing.
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