"It is unlikely that donors will be willing to channel even more aid to the sector without significant reform and it is also unlikely that most of the NGOs will be able to absorb and use effectively the increased funding," said the report released recently.

The report pointed out considerable problems with accountability and transparency regarding the NGO sector finances.

The international donor agency, however, said there are a few well-run and effective NGOs, but a large number of them are less effective and efficient.

The report also pointed to the fact that the NGOs might be able to provide services in areas that the government is unable to reach, these NGOs cannot undertake sorely needed large infrastructure projects.

The IMF in April this year prepared the paper on 'Bangladesh: Selected Issues' which include a series of reports on readymade garments, bank, revenue, remittance, inflation, state-owned enterprises (SoEs) and aid flow.

The report said it is clear from the debt sustainability analysis (DSA) presented in 2006 that there is space for Bangladesh to receive more loans from the donor community. Based on this analysis, Bangladesh is significantly below the indicative thresholds for NPV (net present value) of debt in terms of GDP, exports and revenues.

The IMF said at the microeconomic level, the key concerns have to do with absorptive capacity and the level of governance and transparency in the public expenditure system.

In this regard, it appears that some progress should be made to ensure that any increased aid would be used effectively to combat poverty, it said.

On a point with regard to mobilisation of resources, the report said,"If the government prepared a well-designed proposal for scaling up poverty expenditures, it would likely make it easier for donors to garner support from their headquarters."

The report said higher aid flows -- in combination with the improvements in transparency and accountability of public services -- could be an important contributor to sustained development.

It also said the effects on the real exchange rate will depend on the nature of the enhanced expenditure resulting from the increase in aid.

The report said in spite of spending less, Bangladesh has made significant progress in improving social indicators in the last 15 years.

"Some observers have attributed this progress to the NGOs' diverse services in areas where the government has not been able to do so," it said.

The report said improvements in donor-government harmonisation and public financial management (PFM) could also help in the struggle to reduce poverty.