Public Finance; Chapter-Seven Foreign Aid.pptx

Course material for the course Public Finance

1. Chapter-Seven :The Economics of Aid Issues to be discussed Understanding Foreign Assistance / Aid Types and Functions of Aid; Importance and Significance/ Consequence of Aid Merits and demerits of Aid; Grants: Process of grant seeking; Elements of a good grant proposal. 1

2. 7.1 Understanding and concept of foreign aid Introduction: Official Development Assistance (ODA) or popularly known as 'foreign aid' is an important source of international flow of financial resources in the developing countries like Bangladesh. Bangladesh has received a sizable amount of foreign assistance over the years. According to the traditional development theory foreign aid like other foreign resources helps to fill up two important gaps of developing countries: one is saving-investment gap and another is foreign-exchange gap (i.e. two gap model developed by Chenery and Strout in 1966). 2

3. Contd. The literatures on the role of foreign aid are not conclusive in the context of Bangladesh (as well as internationally). Early studies on the effects of aid e.g. Islam 1972, Alamgir 1974, and Rahman 1984, found that foreign aid has positive effect on economic growth of Bangladesh . Thus their studies support the traditional pro-aid views. On the other hand, more recent studies e.g. Ahmed 1992, Islam 1992, Quazi 2000 and 2005, found evidence contrary to the earlier studies, that is foreign aid doesn't affect economic growth positively. 3

4. Contd. how much the economy of Bangladesh is dependent on foreign aid? To evaluate that firstly, the paper demonstrates the trends and composition of foreign aid flows to Bangladesh since the independence. Secondly, it measures the degree of aid dependency of the economy by analysing different indicators like aid as percentage of GDP, ADP, and budget; share of debt/debt service in GDP; share of export and remittances in GDP. 4

5. Contd. Study shows that Bangladesh has received a massive influx of more than $60 billion as foreign aid since its independence. However, the aid scenario of the country has been changing during the last two decades not only in terms of sources and volume of aid, but also in terms of sectoral allocation and utilization. More importantly, though ODA is still a significance source of foreign exchange, its importance has declined over the years as the exports and remittances picked up. As the economy has grown, the flow of aid as a proportion of GDP or percentage of investment has declined over time 5

6. 7.2 Types / Classification of foreign aid in Bangladesh Foreign aid to Bangladesh is classified based on terms and conditions, source, and use. The various types of foreign aid Bangladesh receives are loans, grants, bilateral aid, multilateral aid, food aid, commodity aid, project aid, and technical assistance .Jun 9, 2021 6

7. 7.3 Does Bangladesh need foreign aid? Foreign aid is an important component of Bangladesh's developmental finance . Although the share of ODA in Bangladesh's GDP has declined over time, the need for ODA in financing development projects is still significant. About 37.1 per cent of development budget is supported by ODA ( MoF , 2019). 7

8. Bangladesh's dependency on foreign aid for budget deficit financing has significantly decreased since the early post-independence period, with foreign aid financing just 32% of the Annual Development Programme (ADP) in FY 2019-20 compared to nearly 50% in FY 2001-02. Although the overall dependency has reduced due to improved domestic resource mobilization and economic growth, foreign aid remains crucial for funding key development projects in sectors like health, education, and infrastructure.   Declining Dependency Reduced Share of ADP: The share of foreign aid in financing the Annual Development Programme has seen a substantial decline, from around 48% in FY 2001-02 to 32% in FY 2019-20, indicating successful domestic resource mobilization by the government.  8

9. Contd Increased GDP Growth: A gradual decline in the foreign aid-GDP ratio occurred despite increasing foreign aid volumes between 1972 and 1999 because the GDP grew at a faster rate, signaling improved self-reliance.  Opportunity for Independence: Some commentators believe Bangladesh no longer requires foreign aid for its overall development and progress, viewing potential cuts as an opportunity to fully wean itself off external assistance.  Continued Importance of Aid Sectoral Support: Foreign aid remains vital for supporting critical development projects in key sectors such as health, education, and physical infrastructure.  9

10. Financing Budget Deficits: Foreign aid continues to play a role in financing the budget deficit, although it accounts for a smaller portion of the overall budget than in the past.  Technical and Analytical Support: Organizations like the World Bank provide not just financial assistance but also technical and analytical support to help Bangladesh achieve its development vision of becoming an upper-middle-income country.  Global Partnership: The World Bank is a longstanding partner and the largest external funder of Bangladesh, providing significant concessional financing and grants for various ongoing projects.  Foreign Aid Dependency of Bangladesh: An Evaluation While in the early post independent period ODA financed entire ADP, now it is financing less than 50 percent of ADP. 10

11. Official Development Assistance (ODA) "ODA" is an acronym that primarily refers to Official Development Assistance, which is a specific category of foreign aid from official bodies of wealthier countries to promote the economic development and welfare of developing countries. The OECD Development Assistance Committee (DAC) defines and tracks this aid, which includes grants and concessional loans. The term "ODA" can also refer to Eiichiro Oda , the creator of the best-selling manga One Piece, the Oda clan , a prominent Japanese samurai family, or several companies, such as the Norwegian online supermarket Oda , the architecture firm ODA, and the online learning platform Oda Class.  11

12. Official Development Assistance (ODA) Purpose: To provide financial support for economic development and welfare in low- and middle-income countries.  Origin: The concept was adopted by the OECD's Development Assistance Committee (DAC) in 1969 and is now the "gold standard" for foreign aid.  Components: Primarily consists of grants and "soft" loans.  Importance: A key source of external finance, especially for least-developed countries, though it is facing new challenges.  12

13. 7.4 Why does F. Aid matter in BD? Foreign aid matters in Bangladesh because it funds Annual Development Programs , providing crucial capital for infrastructure , such as roads and energy, and vital social programs in sectors like health and education, directly contributing to economic growth and improved social indicators like higher life expectancy and school enrollment. It helps fill the foreign exchange gap , enabling the country to import essential goods, raw materials, and medicines, and provides grants for project investments that bolster development. While its overall share in the GDP has declined, aid remains a significant part of the development budget and a necessary resource for addressing development needs and reducing poverty.   13

14. Contd Filling Economic Gaps : Aid helps to close the "foreign exchange gap" and "saving-investment gap" identified in developing countries, allowing for necessary imports of food, medicines, and raw materials.  Improving Social Indicators : Foreign aid has been a significant factor in funding social sector initiatives, contributing to better health outcomes (e.g., reduced infant mortality) and improved educational attainment (e.g., higher school enrollment).  Historical Significance : 14

15. Key Reasons Foreign Aid is Important Financing Development Projects : Foreign aid directly supports Bangladesh's development budget, providing funds for new infrastructure and other critical projects that drive economic growth.  At the time of its independence, Bangladesh's economy was devastated, and foreign aid was vital for survival and for establishing basic functions of the new nation.  Economic Support : Aid inflows are a substantial source of finance, complementing government revenue from taxes to fund the Annual Development Program, which is the nation's investment plan for the year.  Areas of Aid Impact Infrastructure Development : Aid has historically provided significant investment in sectors like energy, transport, water, and sanitation.  15

16. Contd Social Sectors : More recently, foreign aid has played a significant role in financing the health and education sectors.  Humanitarian Needs : In the early years, much of the aid received was in the form of food and disaster relief to address immediate humanitarian needs following the country's devastating emergence as an independent state.  16

17. Contd ICT sector development To fulfill current economic target; othres 17

18. Share of aid by purpose Generally, food aid, commodity aid, and project aid: During the period immediately after independence Bangladesh received significant amount and share of food aid in total aid. But since the early 1980s the share of food has declined gradually and now Bangladesh receives very insignificant amount of food aid. For example, in 1971/72 the share of food aid in total aid was about 48 percent, while the share declined to just 1.2 percent only in 2013/14. 18

19. 7.5 Role of Foreign Aid in Funding the SDGs in Bangladesh Foreign aid is an important component of Bangladesh's developmental finance. Although the share of ODA in Bangladesh's GDP has dec ... Centre for Policy Dialogue (CPD) Foreign Aid in Bangladesh: A Thing of the Past? Jun 14, 2021 — Social and economic indicators such as the increase in life expectancy at birth increased from 65 years in 2001 to 72 ... LightCastle Partners (PDF) Whither Aid in Bangladesh? - ResearchGate Sep 20, 2017 — Aid was contributing significantly to Bangladesh's foreign exchange reserve buildup until 1990 as it was higher than t.. 19

20. 7.6 Trends and Patterns aid flows to Bangladesh     Bangladesh has received a sizable amount of foreign assistance over the years. Table 1 in Appendix provides the data on foreign aid flows to Bangladesh from 1971 through 2013. During this period, the country received more than $60 billion of foreign aid, with an annual flow of aid that has ranged from about $1 billion to some $3 billion. A number of important features of the foreign aid inflows to Bangladesh may be noted as follows: 20

21. 7.7 Grants: Process of grant seeking Take time to learn about each step in the grants process from planning to apply through developing and submitting your application to award and post-award reporting.  Plan to Apply Plan ahead, assess funding opportunities, and take other early steps. Learn to work with your organization, assess resources and teammates, identify a funding opportunity, check application policies, and lay out your timeline. Plan Within Your Organization 21

22. Process of grant seeking Consider Your Idea, Resources, and Collaborators Find Your Opportunity, Contacts, and Due Dates Follow NIH Application Policies and Requirements Organize Your Time to Complete the Application 22

23. Process of grant seeking Now, find the official grant application instructions, preview application forms, get advice on grant writing, check out sample grant applications, and read our tips on specific application attachments and sections. How to Apply – Application Guide Forms Directory General Grant Writing Tips Advice on Application Sections Sample Applications and Documents , and 23

24. Process of grant seeking Submit Learn about the steps you must take after filling out your application forms to complete the submission process, how NIH checks your application for completeness prior to review, and NIH submission policies. How to Submit, Track, and View Your Application How We Check for Completeness Submission Policies . 24

25. Process of grant seeking Review What happens between the time you submit the application and NIH lets you know you will be funded? Learn more about receipt and referral and NIH’s peer review process. Application Receipt and Referral First Level: Peer Review Second Level: Advisory Council Review After Review 25

26. Process of grant seeking Award When NIH awards a grant, we are formalizing our partnership with the recipient to ensure compliance with federal laws, regulations and policies. Funding Decisions Just-in-Time (JIT) Information Notice of Award (NOA) Accepting the Award 26

27. What makes a quality / good grant proposal? For making a quality oriented proposal, be specific informative, and avoiding redundancies . The thought process of the application should be easy to follow. Make your application as easy to read as possible. Establish a clear, organized structure with headings . 27

28. Contd The 5 Rs of grant proposal writing are: Research – Find appropriate grant opportunities. Relationships – Build connections with funders. Readiness – Ensure your organization is prepared to apply. Response – Tailor your proposal to the funder's priorities. Review – Revise and proofread before submission. 28

29. 7.8 Elements of a good grant proposal Generally , a quality or a good grant proposal includes: a convincing executive summary, a clear problem statement detailing the need for the grant for project, precise and SMART objectives, a detailed project methodology, a thorough budget with justification, a plan for project evaluation, and information about the organization's qualifications . Tailoring the proposal to the funder's priorities and demonstrating clear, measurable outcomes are also crucial for success.   29

30. Key Elements of a Good Grant Proposal Executive Summary/Abstract: A concise overview of the entire proposal, including the problem, objectives, methods, and funding request.  Organization Information: An introduction to your organization, its mission, and its qualifications to implement the proposed project.  Problem or Needs Statement: Clearly define the problem or gap your project aims to address, using data and evidence to show its significance and impact.  30

31. Key Elements of a Good Grant Proposal Project Objectives: State specific, measurable, achievable, realistic, and time-bound (SMART) goals that the project intends to accomplis ethodology /Action Plan: Detail the specific steps and activities you will undertake to achieve the project objectives.  31

32. Contd Project Evaluation: Describe how you will measure and assess the success of the project and the achievement of its objectives.  Budget and Budget Justification: Provide a detailed breakdown of all anticipated project costs and explain why each expenditure is necessary.  32

33. Contd Expected Outcomes: Describe the short-term and long-term results the project will achieve and how they will be disseminated.  Sustainability and Future Funding: Outline plans for the project's long-term viability and potential for future funding beyond the current grant.  Personnel/Qualifications: Provide information on the key individuals involved in the project and their relevant experience and expertise.  33

34. Contd Some key information for Success Follow Guidelines: Adhere strictly to the funder's application instructions.  Tell a Story: Use a clear, compelling narrative to connect with the funder and show the impact of your work.  Demonstrate Alignment: Explain how your project aligns with the funder's mission, goals, and priorities.  34

35. Contd Show Impact: Focus on measurable outcomes and tangible results to convince the funder of the project's value.  Be rational: Develop a feasible project plan with attainable objectives and a realistic timeline.  Proofread: Thoroughly review and proofread the entire proposal for clarity, grammar, and spelling errors.  35

36. Data source 1. Does Foreign Aid Have an Expected Role in the Economic Growth of Bangladesh? An Analysis in ARDL Approach Authors Md Ismail Hossain Department of Banking Regulation and Policy, Bangladesh Bank, Head Office, Dhaka, Bangladesh, DOI: https://doi.org/10.32479/ijefi.13664 2. Basic Elements of a Grant Proposal https://www.colgate.edu/about/campus-services-and-resources/basic-elements-grant-proposal 3. others 36