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07 PPT_Foreign Aid and its importance in economic
- 1. Class Lecture onForeign Aid MSS in Governance & Development Studies, 29th batch, Department of Govt. & Politics, Jahangirnagar University
- 2. Introduction • Foreign Aid:Definition, Sources, Rationales • Impact of foreign aid • Criticism of foreign aid • Status of foreign aid in Bangladesh • Measures to reduce dependency
- 3. Foreign Aid Ininternational relations, aid (also known as international aid, overseas aid, or foreign aid) is a voluntary transfer of resources from one country to another, given at least partly with the objective of benefiting the recipient country.
- 4. What is Aid? Aid means assistance and it takes different forms. Sometimes it is monetary assistance which means that money is paid to the government or an organization working in the country. Aid is the transfer of goods and services form developed to developing countries. Examples: Aid from USA to Bangladesh or Japan to Nigeria.
- 5. Foreign Aid Theinternational 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).
- 6. Foreign Aid Themost basic definition of the term is "resources given from one country to another." But it’s usually understood to mean money, materials, and manpower given or loaned by governments, organizations, and individuals in rich countries to help people in poor countries. Also referred to as international aid, economic aid, or development aid/assistance, foreign aid is a category distinct from military aid. Foreign aid is money, materials, and services given or loaned by governments, organizations, and individuals in rich countries to help people in poor countries.
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- 10. Foreign aid :Bangladesh perspective In Bangladesh, the standard practice is to treat only the loans received on concessional terms and grants as foreign aid. For example: Bangladesh has received a massive influx of more than $60 billion as foreign aid since its independence. Foreign financial flows, technical assistance, and commodities that are: (1) designed to promote economic development and welfare & (2) provided as either grants or subsidized loans. (Radelet Stefan, 2006, OECD) Official development assistance by developed countries and multilateral institutions, also unofficial aid through non- governmental and charitable foundations They may be in form of Grants, Loans, Supplier’s/Buyers’ Credit
- 11. Foreign aid toBangladesh: According to Fiscal Year(FY) Various donor countries and agencies have provided Bangladesh with substantial amounts of public foreign assistance since independence in 1971. At the time of present government, from the fiscal year 2009-10 to the fiscal year 2015-16, foreign aid of US$ 32.40 billion has been committed, of which 4.70 billion as grant and US$ 27.70 billion as loan.
- 12. IBRD establishedin 1920 and IMF was estd. in 1945. The organization for Economic co- operation and Development (OECD) established in 1960 is a major provider of foreign aid and capital to developing countries. The first IBRD loans on concessional terms for specific development projects in the third world were made three Latin American countries in 1948 and 1949.
- 13. Since 1946,the United States has given over $146 billion in humanitarian assistance to foreign countries. In 1985, the United States provided over $10 billion in non-military aid abroad, ranging from free food to balance-of-payments support to project-assistance and population- planning programs.
- 14. HISTORY OF FOREIGNAID After World War II, the Truman administration decided that a larger, more centralized effort was necessary to revitalize the war-torn economies of Europe. Economic planning was the rage in Washington in the late 1940s, and Marshall Plan administrators exported their new-found panacea. (Solution )
- 15. The MarshallPlan poured over $13 billion into Europe and coincided with an economic revival across the continent. The best analysis indicates that Europe would have recovered regardless of U.S. aid, and that the clearest effect of the Marshall Plan was to increase the recipient governments' control of their economies.
- 16. The apparentsuccess of the Marshall Plan led Truman in 1949 to propose his Point Four Program To provide a smaller version of the Marshall Plan for poor countries in Africa, Asia, and Central and South America
- 17. Truman declaredthat Point Four would be "a bold new program for making the benefits of our scientific advances and industrial progress available for the improvement and growth of undeveloped areas.
- 18. Positive side ofForeign Aid Foreign aid’s main role in stimulating economic growth has been to supplement domestic sources of finance such as saving, thus increasing the amount of investment and capital stock. This is facilitated by an increase in investments both physically and human capital as well.
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- 22. Sources of ForeignAid (For Bangladesh) Multilateral Development Partners: ADB, IMF, IDB, UN Organizations, The World Bank Group, EC, OPEC etc. Bilateral Development Partners North American Country (USA, Canada) European Countries (UK, Germany, Netherlands) Asian Countries (China, Japan, South Korea, India) Middle East Counties (Kuwait, Saudi Arabia, UAE) NORDIC Countries (Denmark, Sweden, Norway) Australia Private charitable organizations International NGOs, Charitable Org., Trusts etc.
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- 24. Rationales & Typesof Foreign Aid Rationales: Economic Growth in LDCs( least developing countries) Development of Basic Infrastructure Humanitarian Aid Establishment of Political Ties Market Expansion To Influence Internal Politics Types of Foreign Aid Mainly Food Aid, Commodity Aid (Example: edible oil, seeds, fertilizers & Chemicals etc.) and Project Aid, For example : ADP ( Annual Development Program) Also Technical Assistance, Program support.
- 25. Impact on ForeignAid "There are no really clear and uncontested conclusions on the effects of aid on economic growth." Study shows that: It had a positive effect on economic growth in African countries However, had a negative effect on economic growth in developing countries in Asia, Latin America and Caribbean *(Result of a study using annual data on a group of 85 developing countries covering Asia, Africa, Latin America and the Caribbean for the period 1980-2007)
- 26. Critique of ForeignAid Corruption Distortion Donor dependency Lack of ownership Poverty Business Cumbersome process
- 27. Bangladesh and ForeignAid Bangladesh depends on foreign aid- to fill the gap of budget deficit, to meet the payment deficit for international trade, to fund the Annual Development Program (ADP) Considerable support received to deal with – Poverty, health, education, infrastructure development and governance issues.
- 28. Total Amount ofAid (US$ m) *Bangladesh Statistical Yearbook
- 29. Changes in Typesof Foreign Aid * Bangladesh Statistical Yearbook 2012
- 30. Role of Foreignaid : ADP context
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- 32. Foreign aid onCOVID- 19 The Bangladesh government has achieved record foreign aid disbursement from development partners amid the Covid-19 pandemic. Development partners disbursed $7.2 billion throughout Fiscal Year 2019-20, compared to $6.5 billion during FY2018-19. The disbursement growth is 11 percent, according to the preliminary report of the Economic Relations Division (ERD).
- 33. Foreign aid onCOVID- 19 The development partners disbursed $6996.24 million as loans and $275.73 million as grants in the FY 19-20. The loan amount was $6262.87 million and the grant amount was $279.7 million during the FY 2018-19.
- 34. Foreign Aid Management Economic Relation Division (ERD) of Ministry of Finance manages foreign aid. In 2010 GOB and 18 donors signed a Joint Cooperation Strategy - Ownership and coordination Alignment Accountability and predictability of aid flows Common agreement on expected outcomes
- 35. Status of ForeignAid Dependence on foreign aid had decreased in Bangladesh from 8.2% of GDP in 1977 to 1.3% in 2009. Remittance and Disbursed Foreign Aid (US$ m) * Bangladesh Bank
- 36. Reducing Aid Dependency Botswana,Korea and Taiwan were Highly dependent on aids in 60s & 70s but they all graduated from aid dependency over 15-25 years through: Strong leadership and clear policies for national development, Aid investment in infrastructure such as roads, education, and in supporting increases in tax revenue and domestic savings and investment, Improving foreign currency earnings through exports, Determining their own strategies with relatively little interference from external sources.
- 37. Measures to reducedependency Mobilize internal resources for development financing Targeting to build countries’ own capacities, infrastructure and domestic taxation Adopting its own development strategies Accepting high quality ‘real aid’ and foreign investment Regional partnerships mostly trade related South-South cooperation Ensuring good governance
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