Development of economy and aid utilisation 

Anu Mahmud

AID is a vital commodity for developing countries in the sense that it is necessary to plug resource gaps caused by imbalance between exports and to have funds for developmental financing. There are also allegations against aid. Almost a theory has been developed by Third World economists that foreign aid is but a strategy of the donor countries to keep the recipient countries perpetually indebted. In all fairness, it must be admitted that there are germs of truth also in these views. But notwithstanding the views, the reality is that foreign aid is too important a part of the resource flows in many developing countries, any sudden denial or reduction of which can have serious adverse repercussions on national economics. It is also true that despite growing indebtedness and debt-related problems most of the aid receiving developing countries could substantially increase their infrastructure, utilities, services and quality of lives of their people by using foreign aid.A country like Bangladesh can indeed much expand its production activities, rapidly increase its economic growth leading to greater employment, wealth and earnings for its people by utilising aid resources quickly and efficiently. But the trend of aid utilisation in this country has been far short of expectations, to say the least. Ever since the creation of Bangladesh, no ADP was satisfactorily implemented. The rate of ADP utilisation has hardly ever been in the neighbourhood of even seventy per cent. The poor rate of ADP utilisation speaks volumes about the state of government machinery. The rate of ADP implementation could be higher.From efficient aid utilisation alone, Bangladesh could come up fast into the ranks of the middle income or semi-developed countries by now. Proper aid utilisation could significantly increase the country's economic capacities by setting up vital infrastructures in support of all kinds of economic activities. Unfortunately, this did not happen and billions of dollars in aid money that came to Bangladesh returned to donor countries after remaining long in the pipe line because Bangladesh ironically lacked absorption capacities', as its officialdom explained it. But what was sought to be explained away as lack of absorption capacities is really a euphemism for inefficiency, corruption and callous disinterest. Selection of projects of dubious value, delays in implementing projects, incomplete projects from inordinate delays and irrational cost escalation, pervasive corruption etc haunt the use of foreign aid in Bangladesh.So, the donors have been insisting that the government in Bangladesh should carry out deep cleansing reforms in its various departments and sectors of the economy so that absorption capacity of aid can increase and the benefits to be generated from aided projects can be fully experienced by the economy. They have been stressing reforms of the government administration, similar reforms in the financial sectors, in the running and establishment of new infrastructure, to name only some areas of concern. Government leaders, too, have been repeatedly assuring the donors about the carrying out of such reforms only to disappoint later by doing nothing or doing only very little to this end.For the faster development of the country and for really accelerating the rate of economic growth, the issue of proper aid utilisation must be addressed effectively in all its aspects at the earliest.The World Bank (WB) and the international Monetary Fund (IMF) have reportedly agreed at the meeting of their Development Committee in Washington to step up debt relief to the world's poorest countries if poverty reduction strategy is drawn by the least developed countries (LDCs).The key policy makers of these two organisations have made it clear that their aim is not to cancel debt for its own sake but to lift people out of poverty.The policy makers are also contemplating linking debt relief to economic reforms aiming at pulling up the poor because $33 billion debt relief to 41 poor nations between 1989 and 1997 failed to spur growth in such economies. The countries that got the debt relief were encouraged to borrow more with the hope that the donors would write off such debts in the future too.In this context, the key policy makers of WB and IMF have suggested that henceforth the debts to poor countries should be made conditional on implementation of reforms for poverty reduction. The multilateral aid agencies and development partners may write off the remaining $45 billion dollars debts to heavily indebted poor countries provided such countries take steps to improve efficiency through reforms. There is no denying that if the debt relief were not backed by actions to generate resources, it would not be helpful for poverty reduction.The LDCs that are the homes of the majority of world's 1.3 billion hard-core poor should draw strategies to reduce poverty. Such countries have so far failed to increase their resource base with the help of foreign aids and grants. This is largely because the aid and grant funds that were made available to them were not spent in a planned way to lift the poor. A major portion of the foreign aids and grants were spent for either donor-dictated projects or non-priority areas without consideration about cost effectiveness, generating very little employment. Rather such projects benefited mostly the rich people. The bureaucrats and a section of politicians reaped the benefits thereof, without investing the fund for developing social sectors and human resources. It is now, therefore, strongly felt that the poor countries have to develop institutional capacities to ensure better utilisation of the funds that are made available by donors and multilateral aid agencies. The developing countries can hardly afford to ignore the concerns of the World Bank and IMF over political instability, bureaucratic hassles, widespread corruption, and inadequate infrastructure and policy inconsistency that slow down growth in such countries. The external help will not be coming if the structural adjustments are not made through reforms.The WB and the IMF policy makers have understandably pointed out the imperatives for increasing investment in social sectors. The major problem of the poor is that they have no access to education, sanitation, pure drinking water, medicine, and minimum amenities of modern life. The 1.3 billion hard-core poor around the word live in sub-human conditions. The development partners and multilateral agencies should focus their policies on improving the conditions of the poor for the sake of maintaining social peace. The poor are also endangering the earth by polluting the environment. The issues of environment degradation and poverty are interlinked.So, all external funds, both official development assistance and commercial lending, should be given to countries that will invest the money in social sectors to improve the condition of the poor. The WB and the IMF that faced the unprecedented demonstration in Washington during the meeting of their Development Committee should review their policies and operations. The demonstrators have demanded abolition of these two organisations because the WB and the IMF are, according to them, protecting the interest of the rich. In the backdrop of such circumstances, the WB and the IMF should appreciate the urgency of taking firm actions in favour of the poor countries for improving the living conditions of the poor. Otherwise, worldwide protests would mount up. Already such protests have largely stalled the progress of trade liberalisation and globalisation. Therefore, the suggestion for stepping up moves to provide debt relief to poor countries should be considered seriously by the WB and IMF institutions in order to remove any misunderstanding about their roles.Bangladesh has not yet qualified for balance of payment support under the structural adjustment facility (ESAF) because the IMF evaluation team has observed that fragility is still noted in the Bangladesh economy. Bangladesh shall qualify for IMF assistance under a new programme called poverty reduction and growth facility (PRGF) if the country broadens its tax base, restores fiscal decline, keeps credit growth within a prudent limit, makes exchange rate more flexible and adopts bold speedy reforms to strengthen governance.The IMF has given the broad hint that the economic fundamentals of Bangladesh remain fragile and they need to be strengthened through reforms. But Bangladesh has been ignoring the IMF warning over the years and hence no balance of payment support was available from the fund. However, it is understood that, in an integrated global economy, hardly any nation can afford to ignore the signals of destabilising macro-economic fundamentals. The Asian countries that ignored such warnings had to face the worst economic crisis. Virtually, their economies collapsed because of decline in foreign exchange reserve, rising inflation, mismanagement in financial sector and failure to recover credit. Such countries also failed to avoid budget deficits. The inefficient management of banks and huge subsidies in maintaining state-owned enterprises caused the major damage to emerging economies. Now Bangladesh has been receiving the same signals of what went wrong in the collapsed economies. The unfortunate aspect is that the government has not been taking correctivemeasures to put the economy on track.There is no denying that the basic fundamentals of Bangladesh's economy are not strong enough to withstand any major internal or external shocks. Therefore, precautionary measures should be taken before the situation goes out of control. But the real solution lies in implementation of basic reforms and economic adjustment programmes.Bangladesh's banking sector is facing serious problem with 43 per cent default loans. The management of the banks has not yet been streamlined and the nationalised commercial banks still work under official directives. Unless discipline is restored in the banking sector and the huge stuck-up loans recovered through strong administrative measures, country's economy will continue to limp. At the same time, the drain of huge resources for subsidising the state-owned enterprises has been straining the fiscal management.

Source: The Daily Independent, Dhaka, July 27, 2000
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