Aid Effectiveness in Bangladesh: Development with Governance Challenges

This paper provides a critical review of aid effectiveness in Bangladesh. Focusing on the contributions of major donors, the paper uses a triangulation approach to assess aid effectiveness, based on the evaluations of donors and recipients. This approach was motivated by the deficiencies of the currently available “rigorous” quantitative methods and 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 government to ensure good governance and to enhance domestic capacity to implement sophisticated projects. In the past, despite many bottlenecks, the economy achieved considerable success in many areas. If the country can maintain its current growth momentum, it will soon join the ranks of the middle-income countries, but the path to this middle-income status is paved with many obstacles: policy, infrastructure, and weak governance. Even though Bangladesh made a transition from authoritarianism to democracy, it shares many of the flaws of a fledgling illiberal democracy: it lacks the institutions of restraint provided by an independent judiciary, by separation of powers to maintain law and order, to ensure the rule of law, and so on. These governance problems notwithstanding, the country did well in the past. However it would be wrong to extrapolate the past into the future, as 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 the 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.