Aid and Conditionality   The Case of Bangladesh

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FFA: Strategic Planning Workshop. Overview . Nature of foreign aid

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Aid and Conditionality The Case of Bangladesh

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1. FFA: Strategic Planning Workshop Aid and Conditionality – The Case of Bangladesh Forum on the Future of Aid Partners’ Planning Workshop – Uganda February 18-20, 2008 M Iqbal Ahmed Unnayan Onneshan Bangladesh [email protected]

2. FFA: Strategic Planning Workshop Overview Nature of foreign aid & its importance towards economic development in Bangladesh Explain the impact of aid conditionality and domestic accountability; Aid conditionality debate and change in policy perspective in aid strategy; Donor numbers, conditionality & existing approach to reduce donors number and conditionality, Functions of national CSOs/NGOs in a development financing regime. I would explain the nature of foreign aid & its importance towards economic development in Bangladesh Then I would briefly examine the impact of aid conditionality and the question of domestic accountability; Aid conditionality debate i.e. the issue of compatibility among different views on conditionalities and changing perspective of aid strategy of donors toward Bangladesh; The issue of diversity of conditionalities originating from multiplicity of donor agencies i.e. donor numbers, conditionality & existing approach to reduce donors number and conditionality, Functions of national CSOs/NGOs in a development financing regime i.e. the issue of tension between national ownership of development agendas by civil society organisations and the NGOs and the influence exercised by donors on such organisations because of the latter’s financial dependence. I would explain the nature of foreign aid & its importance towards economic development in Bangladesh Then I would briefly examine the impact of aid conditionality and the question of domestic accountability; Aid conditionality debate i.e. the issue of compatibility among different views on conditionalities and changing perspective of aid strategy of donors toward Bangladesh; The issue of diversity of conditionalities originating from multiplicity of donor agencies i.e. donor numbers, conditionality & existing approach to reduce donors number and conditionality, Functions of national CSOs/NGOs in a development financing regime i.e. the issue of tension between national ownership of development agendas by civil society organisations and the NGOs and the influence exercised by donors on such organisations because of the latter’s financial dependence.

3. FFA: Strategic Planning Workshop Nature of Foreign Aid & its Importance towards Economic Development Bangladesh has emerged a trade dependent country from an aid dependent country at present trade-GDP ratio is 41% compared to 10% in early 1990s the current ratio between exports of G & S and disbursed aid is 16:1 as against 1.2: 1 in early 1990s However, aid continues to play a critically important role as aid still accounts for about 50% of the ADP, constituting more than 2% of GDP. a sizable portion of aid goes to health, education and infrastructure development

4. FFA: Strategic Planning Workshop Nature of Foreign Aid & its Importance towards Economic Development Before 1990, the most of the aid came in the form of food aid and commodity aid and the conditionality of those aid were to induce the government to adopt overall reforms like privatisation, deregulation etc. But 1990 and onwards, the amount of sector specific project aid has increased significantly with increasing conditionality. This, as a result, creates space for more policy influence by donors to the government

5. FFA: Strategic Planning Workshop Effects of Conditionality & Domestic Accountability Ownership & conditionality are : two mutually exclusive events in aid effectiveness policy space i.e. ownership could not co-exist with conditionality as latter undermines the former. Whereas ownership & domestic accountability are: two interdependent components i.e. weak ownership undermines domestic accountability. Also conditionality often implies upward accountability (with donors) whereas respecting ownership means downward accountability (with citizens): in reality maintaining upward accountability often violates downward accountability e.g. IMF’s PRGF programme in Bangladesh Perhaps, because of the nature of the relationship between the aid effectiveness components and since traditional conditionality is often intrusive and corrosive, the aid does not ensure optimal outcome in the recipient countries, undermining the domestic accountability. Perhaps, because of the nature of the relationship between the aid effectiveness components and since traditional conditionality is often intrusive and corrosive, the aid does not ensure optimal outcome in the recipient countries, undermining the domestic accountability.

6. FFA: Strategic Planning Workshop Effects of Conditionality & Domestic Accountability Aid & policy conditionality impacts: Since mid 1980s and early 1990s, aid has come through a wide range of policy reform agenda under the SAP, ESAP, PRSP, PRGF and so on, But the problem with the reform packages is that these are the predetermined path of reform agenda of the donors and were replicated in different African, Latin American and Asian countries including Bangladesh without considering the ground realities and real problem of these countries.

7. FFA: Strategic Planning Workshop Effects of Conditionality & Domestic Accountability The reform programme resulted in privatisation, deindustrialisation, closure of jute mills creating loss of employment, withdrawal of agricultural subsidy intensified the present food insecurity, tariff liberalisation has pace up increasing import dependency, privatisation of public utilities resulted in increasing the prices of utility services, the recent monetary and fiscal measures shrunk the investment opportunity, putting constraints on employment generation. Therefore, foreign aid as well as the associated policy conditionality has significant implication in the political economy of Bangladesh in general and the distribution of income as well as the social balance of power and influence in particular. tying aid with pre/post conditions is not a problem but to impose conditions without considering the willingness of the recipient governments is becoming more of a threat than opportunity: increase aid wastages, creates dependence, and reduce confidence. Thus conditions without realising the capacity of the recipient countries only affects efficient utilization of aid.tying aid with pre/post conditions is not a problem but to impose conditions without considering the willingness of the recipient governments is becoming more of a threat than opportunity: increase aid wastages, creates dependence, and reduce confidence. Thus conditions without realising the capacity of the recipient countries only affects efficient utilization of aid.

8. FFA: Strategic Planning Workshop Different Views on Donors Conditionality There are two extreme views on donors’ conditionality: one which support aid with conditionality, considering it as best criteria to efficient utilisation of fund other view is that condition imposed from the outside would reduce space of national policy decisions thus undermining the ownership. Debate around the issues remain inconclusive

9. FFA: Strategic Planning Workshop Different Views on Donors Conditionality Though prime focus of aid conditionality is to economic development with attacking poverty, the other issues that came in to aid debate over the years with changing perspective of donors’ aid strategy are Governance Democracy Human rights Environment Institutional Reforms Corruption etc

10. FFA: Strategic Planning Workshop Different Views on Donors Conditionality Issues of Governance, Institutional Weakness and Corruption: These are the major problems in Bangladesh, which could influence one to argue that these issues are some of the main pitfalls as far as aid effectiveness is concerned. Therefore aid effectiveness could not merely be attributed to conditionality. But looking at the aid history of the recipient countries, today’s fragile state did not come all of a sudden but was the resultant impact of concurrent aid ineffectiveness over the years for whatever the reason it may have, the inappropriate policy conditionality is one of the major factors for aid ineffectiveness. Because inappropriate conditions create scope for rent seeking by the executing agencies including that of domestic actors like ministers, MPs, bureaucrats etc.

11. FFA: Strategic Planning Workshop Different Views on Donors Conditionality Contd… These as a result tempted to corruption therefore weakened the institutions. For example, Ministry of Local Government and Rural Development, which implements the bulk of the foreign funded project, ranked as a most corrupted institution by the Transparency International-Bangladesh. PRSP is another example. Therefore there is no denying that our politicians and policymakers should bear the burden of such a bad state, but donors have to bear the sheer responsibility while imposing inappropriate conditionality.

12. FFA: Strategic Planning Workshop Donors Number and Conditionality More donors that work in a country, more likely it is that conditionality would increase because each donor pursue its own priorities. For example, in Bangladesh, in health and population sector, several donors have taken up several projects attaching with wide range of conditionalities though the ultimate goals remain the same. Recently, in a bid to coordinated the donors activities, SWAp has been initiated in primary education sector. But the problem is that while share of AsDB’s fund is less than half of the GoB, former has an increasing influence to the project.

13. FFA: Strategic Planning Workshop Role of Civil Society Undeniably civil society has a decisive role in promoting national development agenda. Also with changing donors’ perspective to aid strategy, more funds are now being channeled through NGOs as the caveats in donor-government relationship creates space to strengthen the donor-NGO relationship. As a result, NGOs are now growingly being involved with mainstream national development programme. CSOs/NGOs are becoming more organised now a days and have a strong voice in Bangladesh. For example, recently, their common stands forced the government stepped back to sign PSI with the IMF.

14. FFA: Strategic Planning Workshop Role of Civil Society However, the problem is that since the different national CSOs/NGOs have different interest and more often than not they are being used as a catalyst to serve the agenda of international development agencies and international NGOs/CSOs, it is therefore imperative to investigate at what extent the CSOs/NGOs back the donors conditionality and what is their role to protect the national interest. At the same time, it is also important to strengthen the fundamental relationship between the government and the CSOs/NGOs

15. FFA: Strategic Planning Workshop Role of Civil Society Understanding these relationships between donor-CSOs/NGOs and government-CSOs/NGOs is vital to protect the national ownership. However, the tasks entail comprehensive research on the dynamics of these linkages both at national and global perspective. But for all these, the necessary condition is that a strong democratic and institutional framework is vital. It is more likely that in a weak institutional framework and a fledgling democratic regime, these relationships tend to be fragile leading to a schism in national interest.

16. FFA: Strategic Planning Workshop Thank You www.unnayan.org

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