THE recent decision by the Trump administration to freeze all foreign assistance worldwide, effective immediately, may cause worries among some in Bangladesh. This is especially so when the United States is the third largest source of foreign aid in Bangladesh after Japan and the United Kingdom. The US aid to Bangladesh stood at around $32 billion during 2000鈥�2022, compared to Japan鈥檚 approximately $71 billion and the UK鈥檚 about $45 billion. However, Bangladesh should seize this as an opportunity to wean itself off foreign aid. As a matter of fact, Bangladesh does not need foreign aid any more for its development and progress. We must get rid of the mind-set of external dependence.
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No longer a bottom-less basket
BEYOND doubt, Bangladesh has achieved remarkable success, and its aid dependence has declined to a negligible level in terms of aid鈥檚 shares in gross national income and a number of other indicators (e.g., imports, investment, and government spending).
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Aid paradox
YET, paradoxically, the Hasina government increasingly sought and received more foreign aid. The average foreign aid received by Bangladesh increased by more than threefold during 2009鈥�2022 to $3.07 billion from an average of $1.12 billion during 1973鈥�2008. When the Hasina government came to power in 2009, Bangladesh鈥檚 net foreign aid was $978.9 million; in 2022, it reached $5.2 billion.
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Autocrat Hasina鈥檚 lazy, prodigal government
MORE than 50 years ago, one of Bangladesh鈥檚 brightest economists, Dr Anisur Rahman, shocked the academic world and foreign aid lobbyists by highlighting that, contrary to the conventional view, foreign aid replaces domestic savings efforts instead of supplementing them.
In a seminal research publication in 1967, Dr Anisur Rahman demonstrated that easy availability of foreign aid makes governments lazy in their efforts in domestic resource mobilisation, e.g., raising tax revenues, while they become wasteful. Dr Rahman concluded, 鈥榝oreign aid may be used as a substitute for domestic savings by governments unwilling to test its 鈥榓bility to increase total savings by changes in the tax structure and by other policies鈥� (emphasis original). He further argued, 鈥楢 country may thus see the possibility of foreign aid offers of 鈥榟aving the cake and eating it too鈥� and鈥� by playing the necessary political game, maximise the allocation of aid in its favour and use foreign aid thus obtained for both higher growth and higher current consumption.鈥�
Dr Rahman鈥檚 theoretical observations, made more than 5 decades ago, fit neatly with Bangladesh during Hasina鈥檚 kleptocratic regime when the tax-GDP ratio declined from around 9.5 per cent in 2011 to around 7.75 per cent in 2023 as her cronies evaded tax and enjoyed various tax advantages. On the other hand, government spending as a percentage of GDP rose from 9.63 per cent in 2010 to 13.55 per cent in 2020, according to the IMF data. Non-development expenditure reached an all-time high of Tk 843,570.000 million in June 2024 from a record low of Tk 5,069.200 million in December 2010 as the regime sought to buy allegiance from bureaucrats and security personnel with largesse.
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Crisis of external dependence
ABOUT four decades ago, Bangladesh鈥檚 other bright economist, professor Rehman Sobhan, reflected on the political economy of foreign aid and warned about the crisis of external dependence.
The end result of the prodigal Hasina government鈥檚 lazy tax efforts has been increasing external dependence. Thus, Bangladesh鈥檚 external debt accumulation accelerated during the kleptocratic Hasina regime, exceeding $100 billion in December 2023.
The crisis of external dependence forced Bangladesh to seek financial support from the International Monetary Fund. As is well known, IMF鈥檚 money does not come as a free gift; its support programmes oblige countries to accept conditions that may not be in their best national interest to promote citizens鈥� welfare.
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It鈥檚 time
IT IS time for Bangladesh to stand tall with a radically changed mind-set. We certainly do not need foreign aid for our development. With appropriate incentives and policy measures, our remittance fighters can easily meet Bangladesh鈥檚 foreign currency needs.
Currently, around 14 million remittance fighters send $25.82 billion yearly through formal channels. However, the World Bank estimates that the actual annual remittance is around $42 billion, implying that about $16 billion are sent annually through informal means.
With appropriate strategies, Bangladesh can also attract foreign investment from non-resident Bangladeshis, spread across the globe. One estimate shows that there is a potential of foreign direct investment made by the NRBs worth $2鈥�3 billion annually.
It is, in fact, heartening that the interim government is taking steps to incentivise remittance fighters and NRB investors. Ironically, Trump鈥檚 foreign aid belligerence offers an opportunity to double up our efforts towards economic sovereignty.
Note: Net aid = After repayments of principles and interests. It includes grants, 鈥榮oft鈥� loans (at concessional interest rates), and technical assistance but excludes loans and credits for military purposes.
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Anis Chowdhury is an emeritus professor at Western Sydney University in Australia and held senior United Nations positions (Economic & Social Affairs) in New York and Bangkok.