The Economy of Bangladesh and Foreign Aid

This chapter provides a comprehensive analysis of the historical trajectory and present dynamics of foreign aid in Bangladesh to demonstrate its strong nexus with the country’s economy. It begins with contextualizing the country’s overall macroeconomic conditions and showcasing its long dependency on foreign aid. The chapter further traces the evolution of foreign aid—from post-independence humanitarian assistance to the contemporary broadened framework involving project aid and budget support, and key transformations in aid composition from grants to loans and donor sources from bilateral to multilateral partners—and critically examines it using latest data. In particular, the chapter highlights the role of foreign aid in Bangladesh’s Annual Development Programme (ADP), noting the country’s growing domestic financing capacity—yet still insufficient, requiring over one-third of ADP funds to be sourced from foreign aid. It also investigates challenges in country’s aid utilization, revealing operational inefficiencies and project delays exacerbate its underperformance in effective use of aid money. The chapter scrutinizes the current status of Bangladesh’s external debt and debt servicing costs too, with particular attention to its debt sustainability condition. Furthermore, the chapter outlines Bangladesh’s national development planning architecture, emphasizing the role of the Planning Commission, Finance Division, and particularly the Economic Relations Division (ERD)—designated institutions in coordinating foreign aid. The chapter underscores foreign aid as an essential element in Bangladesh’s development journey—balancing strategic necessity with increasing vulnerabilities, which need to be institutionally addressed, especially from the top level, to further enhance its efficacy.