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Opinion Article on Current ODA Allocation Across Sectors in
Bangladesh & Effective Financing for Development
(Engr. Abdullah Al Mamun, Dhaka, Bangladesh)
From a precarious beginning, Bangladesh has achieved notable progress in economic and
social development in about four decades. When it became independent in 1971 following a
glorifying bloody war, many were skeptical about the country’s long-term economic viability.
Some observers predicted a state of perennial aid dependence, some predicted as ‘basket case’.
Despite the naysayers’ gloomy predictions and the widely shared pessimistic outlook,
Bangladesh has made significant economic and social strides in the last three decades or so of its
existence: it is no longer considered a basket case. Notwithstanding its large population, the
country has achieved a measure of food self-sufficiency, reduced population growth rate from
2.5% per year in the 1980s to less than 1.35% in 2014 (Bangladesh Bureau of Statistics) and a
number of other social indicators, such as infant mortality, life expectancy, primary school
enrollment, female enrollment in school, adult literacy etch and attained target of some of the
goals of MDG’s before 2015.
Nevertheless, despite this success, Bangladesh is still at a rudimentary stage of economic
and social transformation. It is still one of the poorest nations of the world which has still many
human-development challenges to contend with and is aided with ODA (Official Development
Assistance). But it’s a good thing that Bangladesh has remarkably reduced its dependency on
foreign aid since its independence. In FY2013 the share of overseas development assistance
(ODA) in Gross Domestic Product (GDP) has declined to 2.2 percent in FY2013from 5.8 percent
in 1981. When compared with the Annual Development Program (ADP), the share of ODA is
42.9 percent in FY2013 compared to 53.2 percent in FY2000.
Fig 1: Top 15 Donors of ODA and sector-wise Disbursement.
Fig 2: Top 15 Donors of ODA in 2014 and sector-wise Disbursement.
Fig 3: Disbursement Commitment vs. Gross sector-wise Disbursement
As the data shown in fig 1 & 2, Bangladesh has some comparatively different
disbursement in 2014 than previous 5 years average, following the advancement to post 2015
development agenda of SDGs. We had underfunding in program assistance and poverty
reduction process in years before 2012. Financing in Education and institutional infrastructure is
important to assist the poor in a large basis. About 6.5% disbursement is in unspecified sector in
2014. This can be allocated in Education sector. Bangladesh will seek new overseas development
assistance to finance several mega projects, including Ganges Barrage, Jamuna Multi-modal
Tunnel and a second Nuclear Power Plant BEFORE 2021. Other projects include a parallel
railway bridge over Jamuna River, Eastern Bypass, excavation of four rivers around Dhaka city
and Mawa-Kalna-Jessore road. From fig 3 another concern is that we are lagging to meet the
commitment of disbursement with the gross distributed ones. Some more concentration is needed
to meet this. As we have a strong ambition to attain the SDG’s in speculated time I do believe we
need to follow some recommendations from week 1 & 2 discussion as follows-
1) Annual budgeting aligned with development priorities.
2) Project financing for development financing and more institutional approach.
3) Visible & accessible acts to mass people using the expertise of diverse development
actors; community driven projects; transparency and audit need to be alongside.
4) Scale-up good practices in collaboration among schemes and with other development
partners.
Fig 4: key Development Factors (source OECD data)
With this key development factors shown and based on the goal set in SDG’s for next 15
years I’d like to discuss some of my observations, how ODA funds disbursement can impact
planned or needed development initiatives going forward, based on my learning from the videos
of the experts and core readings relating smart tax administration, mobilization of public
domestic finance, public-private partnership and actions that Colombian govt. has taken and El
Salvador Tax Reform Case Study
Despite various initiatives in the area of tax policy and administration, tax mobilization
remained low in Bagladesh. Tax performance is constrained by a number of structural factors.
Measures such as simplification of value added tax (VAT) system, increased coverage of VAT
and imposition of supplementary tax would have contributed to revenue growth.
Another concern is the increased capital flight from the country which has been quite
significant, according to the report on ‘Illicit Financial Flows from the Least Developed
Countries’ by UNDP (2011). Given the importance of the issue the newly set up Transfer Pricing
Cell within the NBR (National Board of Revenue) needs to be more vigilant on such outflow of
domestic resources. Such effort has to be backed by human resources and infrastructure.
The financial system in Bangladesh is dominated by the banking sector. In terms of
outreach and access to financial services to its population Bangladesh has made good progress.
However, there are still gaps between the demand and provision of financial services to rural
areas and in financing small and medium enterprises, agriculture and infrastructure. Moreover,
interest rate spread which is the difference between the weighted average lending rate and the
weighted average deposit rates is high in the banking sector by international standards.
Given the resource constraint of the government the private sector can play an important
role to bridge the gap between resource requirement and availability. The public private
partnership (PPP) could be a useful mode of domestic resource mobilization for undertaking
large investment in power, port and infrastructure projects. An amount of US$ 80 million was
allocated by the government in the budget of FY2015. But on private finance, we cannot over-
emphasis that for attracting international private finance, the interlinked issues are capacity
building, access to global markets etc. Also, we should not ignore that private finance is mostly
profit oriented, thus cannot be substitute for public finance. In all these issues, country ownership
would be pivotal.
As the debate on financing strategy for climate change is evolving, I emphasis that
assistance for climate change adaptation programs should not be counted as part of ODA, rather
these should be additional, and absolutely outside the computation of ODA.
The shares of gross national savings and gross investment as a percentage of GDP were
29.5 percent and 26.8 percent respectively in FY2013 suggesting that there was investible
surplus in the economy. This surplus is also manifested through under implementation of the
ADP. While addressing the issue of domestic resource mobilization both policy and institutional
aspects have to be considered. The implementation of new measures requires a transparent and
accountable tax administration which should be supported by efficient and honest human
resources. They should also be able to work independently and impartially without any external
influence. It’s important that taxpayers are convinced and confident of the proper utilization of
their hard earned money to enhance resource mobilization.
Therefore, there has to be clarity and transparency on the purpose of resource allocation
for investment so that the responsible authority can be made accountable in case they fail to
perform. This is also required for improving the quality of expenditures so that resources spent
by the public representatives can contribute to employment generation and poverty reduction
which are part of the post-2015 development agenda. The achievement of post-2015 agenda is
thus, to a large extent, contingent upon domestic resource mobilization.
Sources:
1. http://aidflows.org/
2. http://www.un.org/esa/ffd/wp-content/uploads/2015/01/1ds-gd-Statement1-Bangladesh-Jan2015.pdf
3. http://www.oecd.org/dac/effectiveness/Bangladesh%203.pdf
4. Third Party Evaluation 2009: The Ministry of Foreign Affairs of Japan
5. Ministry of Finance, Peoples Republic of Bangladesh.
From billions to trillions means - The mobilization of financing for development by using the
billions of dollars available in official development assistance to mobilize trillions of dollars in
support of the MDG & the SDGs.

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Current ODA Allocation Across Sectors in Bangladesh and Effective Financing for Development

  • 1. Opinion Article on Current ODA Allocation Across Sectors in Bangladesh & Effective Financing for Development (Engr. Abdullah Al Mamun, Dhaka, Bangladesh) From a precarious beginning, Bangladesh has achieved notable progress in economic and social development in about four decades. When it became independent in 1971 following a glorifying bloody war, many were skeptical about the country’s long-term economic viability. Some observers predicted a state of perennial aid dependence, some predicted as ‘basket case’. Despite the naysayers’ gloomy predictions and the widely shared pessimistic outlook, Bangladesh has made significant economic and social strides in the last three decades or so of its existence: it is no longer considered a basket case. Notwithstanding its large population, the country has achieved a measure of food self-sufficiency, reduced population growth rate from 2.5% per year in the 1980s to less than 1.35% in 2014 (Bangladesh Bureau of Statistics) and a number of other social indicators, such as infant mortality, life expectancy, primary school enrollment, female enrollment in school, adult literacy etch and attained target of some of the goals of MDG’s before 2015. Nevertheless, despite this success, Bangladesh is still at a rudimentary stage of economic and social transformation. It is still one of the poorest nations of the world which has still many human-development challenges to contend with and is aided with ODA (Official Development Assistance). But it’s a good thing that Bangladesh has remarkably reduced its dependency on foreign aid since its independence. In FY2013 the share of overseas development assistance (ODA) in Gross Domestic Product (GDP) has declined to 2.2 percent in FY2013from 5.8 percent in 1981. When compared with the Annual Development Program (ADP), the share of ODA is 42.9 percent in FY2013 compared to 53.2 percent in FY2000. Fig 1: Top 15 Donors of ODA and sector-wise Disbursement.
  • 2. Fig 2: Top 15 Donors of ODA in 2014 and sector-wise Disbursement. Fig 3: Disbursement Commitment vs. Gross sector-wise Disbursement As the data shown in fig 1 & 2, Bangladesh has some comparatively different disbursement in 2014 than previous 5 years average, following the advancement to post 2015 development agenda of SDGs. We had underfunding in program assistance and poverty reduction process in years before 2012. Financing in Education and institutional infrastructure is important to assist the poor in a large basis. About 6.5% disbursement is in unspecified sector in 2014. This can be allocated in Education sector. Bangladesh will seek new overseas development assistance to finance several mega projects, including Ganges Barrage, Jamuna Multi-modal Tunnel and a second Nuclear Power Plant BEFORE 2021. Other projects include a parallel railway bridge over Jamuna River, Eastern Bypass, excavation of four rivers around Dhaka city and Mawa-Kalna-Jessore road. From fig 3 another concern is that we are lagging to meet the
  • 3. commitment of disbursement with the gross distributed ones. Some more concentration is needed to meet this. As we have a strong ambition to attain the SDG’s in speculated time I do believe we need to follow some recommendations from week 1 & 2 discussion as follows- 1) Annual budgeting aligned with development priorities. 2) Project financing for development financing and more institutional approach. 3) Visible & accessible acts to mass people using the expertise of diverse development actors; community driven projects; transparency and audit need to be alongside. 4) Scale-up good practices in collaboration among schemes and with other development partners. Fig 4: key Development Factors (source OECD data) With this key development factors shown and based on the goal set in SDG’s for next 15 years I’d like to discuss some of my observations, how ODA funds disbursement can impact planned or needed development initiatives going forward, based on my learning from the videos of the experts and core readings relating smart tax administration, mobilization of public domestic finance, public-private partnership and actions that Colombian govt. has taken and El Salvador Tax Reform Case Study
  • 4. Despite various initiatives in the area of tax policy and administration, tax mobilization remained low in Bagladesh. Tax performance is constrained by a number of structural factors. Measures such as simplification of value added tax (VAT) system, increased coverage of VAT and imposition of supplementary tax would have contributed to revenue growth. Another concern is the increased capital flight from the country which has been quite significant, according to the report on ‘Illicit Financial Flows from the Least Developed Countries’ by UNDP (2011). Given the importance of the issue the newly set up Transfer Pricing Cell within the NBR (National Board of Revenue) needs to be more vigilant on such outflow of domestic resources. Such effort has to be backed by human resources and infrastructure. The financial system in Bangladesh is dominated by the banking sector. In terms of outreach and access to financial services to its population Bangladesh has made good progress. However, there are still gaps between the demand and provision of financial services to rural areas and in financing small and medium enterprises, agriculture and infrastructure. Moreover, interest rate spread which is the difference between the weighted average lending rate and the weighted average deposit rates is high in the banking sector by international standards. Given the resource constraint of the government the private sector can play an important role to bridge the gap between resource requirement and availability. The public private partnership (PPP) could be a useful mode of domestic resource mobilization for undertaking large investment in power, port and infrastructure projects. An amount of US$ 80 million was allocated by the government in the budget of FY2015. But on private finance, we cannot over- emphasis that for attracting international private finance, the interlinked issues are capacity building, access to global markets etc. Also, we should not ignore that private finance is mostly profit oriented, thus cannot be substitute for public finance. In all these issues, country ownership would be pivotal. As the debate on financing strategy for climate change is evolving, I emphasis that assistance for climate change adaptation programs should not be counted as part of ODA, rather these should be additional, and absolutely outside the computation of ODA. The shares of gross national savings and gross investment as a percentage of GDP were 29.5 percent and 26.8 percent respectively in FY2013 suggesting that there was investible surplus in the economy. This surplus is also manifested through under implementation of the ADP. While addressing the issue of domestic resource mobilization both policy and institutional aspects have to be considered. The implementation of new measures requires a transparent and accountable tax administration which should be supported by efficient and honest human resources. They should also be able to work independently and impartially without any external influence. It’s important that taxpayers are convinced and confident of the proper utilization of their hard earned money to enhance resource mobilization. Therefore, there has to be clarity and transparency on the purpose of resource allocation for investment so that the responsible authority can be made accountable in case they fail to perform. This is also required for improving the quality of expenditures so that resources spent by the public representatives can contribute to employment generation and poverty reduction
  • 5. which are part of the post-2015 development agenda. The achievement of post-2015 agenda is thus, to a large extent, contingent upon domestic resource mobilization. Sources: 1. http://aidflows.org/ 2. http://www.un.org/esa/ffd/wp-content/uploads/2015/01/1ds-gd-Statement1-Bangladesh-Jan2015.pdf 3. http://www.oecd.org/dac/effectiveness/Bangladesh%203.pdf 4. Third Party Evaluation 2009: The Ministry of Foreign Affairs of Japan 5. Ministry of Finance, Peoples Republic of Bangladesh. From billions to trillions means - The mobilization of financing for development by using the billions of dollars available in official development assistance to mobilize trillions of dollars in support of the MDG & the SDGs.