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Evaluating Aid for Trade on the ground: lessons from Bangladesh – Fahmida Khatun

Published under ICTSD Bridges Africa, Volume 4 – Number 5 on 26 May 2015

Evaluating Aid for Trade on the ground: lessons from Bangladesh

Fahmida Khatun

evaluating-aid-for-trade-lessons-bangladesh-fahmida-khatun-may-2015

How can Aid for Trade be made more effective in helping Bangladesh overcome its trade constraints? An assessment on the basis of a common and independent methodology developed by the ICTSD and South Asia Watch on Trade, Economics and Environment (SAWTEE) reveals that country ownership, donor alignment with national priorities, and increased capacity building initiatives are key to maximizing AfT benefits.

As a Least Developed Country (LDC), even though Bangladesh receives special and differential treatment and preferential access to the markets of developed and developing countries, these preferences have only provided partial benefits because of several supply-side constraints. The country is yet to make meaningful headway towards export diversification given the concentration of its exports within the boundary of apparel products. The country has received support for capacity building in the area of trade through various special programmes such as the Enhanced Integrated Framework (EIF) and the Aid for Trade (AfT) initiative led by the WTO.

A study was undertaken by ICTSD to examine the effectiveness of AfT in Bangladesh.  It makes its assessment on the basis of a common and independent methodology developed by the ICTSD and SAWTEE.

 

Key findings from the AfT study

Trajectory of AfT: The analysis based on the Organisation for Economic Co-operation and Development (OECD) database indicates that the disbursement of AfT has not increased during the period 2006–11 compared to 2002–05, except for only AfT for trade policy and regulation. Disbursement improved substantially since 2006 (e.g. from US$ 276.8 million in 2006 to US$ 471 million in 2011 and to US$ 925.3 million in 2012); however, the gap between commitment and disbursement has widened in recent years. Even though the share of AfT in the form of grants has increased slightly, most trade-related assistance is still provided as loans.

There has been a minor change in the structure of disbursements over time. The share of economic infrastructure in total AfT rose from 57 percent during 2002-05 to 64 percent during 2006–11. While the share of building productive capacity declined from 43 percent to 33 percent over the same period, trade policies and regulations went from nearly zero to three percent of AfT in the base period.

Despite increase in the total volume of AfT since 2002, the yearly average growth rate during 2006–11 is negative, as opposed to high positive growth  at the global level. At the current trend of AfT flows, it will be difficult for the country’s AfT to have a significant impact on achieving national development goals.

Ownership of trade-related projects is yet to be fully established:AfT projects are closely linked to the objectives of national development policies, but Bangladesh’s effort to mainstream AfT into these policies remains limited.

Alignment of overall ODA has improved: A positive feature of Official Development Assistance (ODA) flows to Bangladesh in the recent past is that they have been aligned with national priorities. There is also more untied aid. However, stakeholders consider that donors continue to impose too many conditions and restrictions and viewtrade-related projects as mostly supply driven.

Donor coordination is moving slowly:Donor coordination has improved through a joint cooperation strategy between the government and donors, which aims to improve the aid relationship in terms of discussing and planning projects together. The donor-government platforms Local Consultative group (LCG) and Joint Cooperation Strategy (JCS) help foster transparency and prevent the duplication of projects. However, mutual accountability by way of involving all stakeholders in the country has yet to be established.

Accessing resources from the South looks grim: Bangladesh has not been able to receive any significant amounts of aid from India and China. ODA disbursement from these two emerging economies has only been around one to four percent of total ODA to Bangladesh since its independence in 1972 (GoB 2012). Much of the ODA support from China and India comes in the form of supply credits and is used to finance infrastructure projects.

Absorptive capacity is low: A large amount of aid remains in the pipeline and is not disbursed, since formalities and preparations for the initiation of projects cannot be completed in time. The lack of an efficient administrative mechanism, low human capacity, political instability, and stringent donor requirements are the main reasons for this.

AfT projects were not procedurally linked to climate change adaptation and mitigation measures:Given the vulnerability of Bangladesh to climate change, the government has undertaken several projects to adapt to its impact. However, AfT projects have not been linked to adaptation and mitigation measures to address the adverse effects of climate change.

Impact at the macro and micro levels: Existing data did not reveal any clear relationship between AfT and export growth in Bangladesh at the macro level. High export growth in Bangladesh is primarily attributable to various favourable government policies since the 1980s in addition to a vibrant private sector. At the micro level, however, the ready-made garments (RMG) sector is found to have benefited from AfT. This is because AfT in the RMG sector has addressed some of the critical areas of the industry such as capacity building for workers and the fulfilment of compliance requirements, which in turn has helped improve the sector’s competitiveness.

 

Policy recommendations

There should be clear guidelines and a set of criteria from the Ministry of Commerce and the Economic Relations Division of the Ministry of Finance for calculating and analysing the actual AfT flows to the country. The formation of an AfT cell within the Ministry of Finance would be useful in this regard.

Trade should be mainstreamed in all relevant ministries. The strengthening of inter-ministerial and inter-agency coordination for the implementation and monitoring of AfT projects is essential. Awareness on AfT should also be raised among ministries, the private sector and the various other stakeholders involved so that they can monitor the AfT projects for ensuring their accountability and transparency.

AfT flows should be increased in the area of economic infrastructure for a more substantial impact on economic growth and poverty eradication. AfT disbursement has to increase steadily and significantly to have an impact on export promotion in the long run.

To establish shared ownership of projects, all relevant stakeholders including the private sector, experts and members of non-governmental organisations should be involved from the beginning of the project all the way to the implementation phase.

The absorptive capacity of ministries and departments should be improved by enhancing the skills of relevant officials. The private sector should also have the capacity to carry out analyses on trade policies as well as to design and implement projects.

Author: Fahmida Khatun, Research Director, Centre for Policy Dialogue (CPD), Dhaka, Bangladesh.

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