A case study of aid effectiveness in Bangladesh: development with governance challenges

Abstract

This paper provides a critical review of aid effectiveness in Bangladesh. Focusing on the contributions of major donors, the paper uses a qualitative triangulation approach to assessing aid effectiveness, based on the subjective judgments of donors and recipients. This approach was motivated by the deficiencies of the currently available quantitative methods as well as by a lack of adequate and reliable quantitative data. Foreign aid has had a mixed performance in Bangladesh. The responsibility for the failure lies with both the government and donors. Donors’ current approach to aid delivery has many shortcomings; addressing them would require changes that (a) allow for greater flexibility in the delivery of aid; (b) provide recipient countries with more policy space; and (c) emphasize results. However, these steps, by themselves, will be insufficient, unless followed with complementary measures by the recipient country — to ensure good governance and to enhance domestic capacity to implement sophisticated projects.In the past, despite infrastructural constraints, policy deficiencies and weak governance, the Bangladesh economy achieved considerable success in many areas. This success — reflected in exports of garments and textiles, remittances from overseas workers and breakthrough in agricultural production — is a testament to people’s entrepreneurial abilities. If the country can maintain its current growth momentum, it would soon join the ranks of the middle-income countries, but the path to this middle-income status is paved with many obstacles — of policy and infrastructure as well as of weak governance. Even though Bangladesh made a transition from authoritarianism to democracy, it shares many of the flaws of a fledgling illiberal democracy. Although the system allows for institutions of representations such as elections and parliament, it lacks institutions of restraint, as provided by an independent judiciary, by separation of powers to maintain law and order and to ensure the rule of law etc. An illiberal democracy can be a breeding ground for corruption and crony capitalism.These governance problems notwithstanding, the country did well in the past. However, it would be wrong to extrapolate the past into the future. In the process of economic development, the role of institutions varies from one stage to another; many aspects of governance that were less critical in the past will become more central in the future — as the economy makes a transition from a predominantly rural and agricultural phase to one that is urban and industrial. The hope is that the political leadership will initiate changes in policies and institutions in synchrony with the evolving exigencies of the economy. If that happens, foreign aid could be an enormous catalyst for economic development — and poverty may soon become a thing of the past.