Bangladesh substantially depends on foreign aid to fill the gap of budget deficit, to meet balance of payment for international trade, and to fund the Annual Development Program (ADP). Usually, the country receives foreign assistance under three broad categories --food aid, commodity aid, and projects aid.

Though the main purpose of foreign aid is to transfer resources from one government to another to stimulate economic development, undeniably there is an inextricable relationship between foreign aid and economic growth in developing countries. In most of the cases, the developing countries are not able to implement their much needed development projects through foreign aid due to so many hindrances.

What actually happens when aid begins to pour in Bangladesh is that, a substantial part of it finds its way back to the lenders in form of consultant fees and cost of equipment. Of course, the government officials, politicians and the influential persons, who are involved in the process, get their due share. Only a scanty sum reaches the poor through some services or benefits. Some of our economists claim that only 25 percent of aid goes to the target groups while 75 percent is siphoned off.

The flow of foreign aid to Bangladesh dwindled drastically and dropped to $1.03 billion in the fiscal year 2003-04, which was the lowest in two decades and a half. Government's failure to comply with the rigid conditionality from the lenders and donors was largely responsible for the huge dip in annual aid disbursement. The donors even did not disburse the food and commodity aid despite the country faced devastating flood in the middle of the year 2004.

The government frantically tried to coax the donors as the inflow of foreign aid continued to decline drastically. It took up the issue with the Local Consultative Group, a club of 32 bilateral and multilateral donors. Meanwhile, the government approved the Harmonization Action Plan (HAP), prepared by the Economic Relations Division, guiding the future direction of the government and donors.

Foreign aid dropped by a staggering 53 percent in the first three months of the just concluded 2006-07 fiscal year due to donor concern over pre-election political instability. Aid inflow was $129.26 million during July-September of the fiscal year 2006-07 as against $273.84 million during the corresponding period in the previous fiscal year. Donors also held back a substantial part of the aid as they feared that the past government would not be able to fulfill aid conditions before handing over power to the caretaker government.

The multilateral lending agencies and donors committed $2.24 billion aid in the just ended 2006-07 fiscal year, which is a 25 percent upsurge in aid commitments made in 2005-06. But aid commitments do not necessarily mean aid disbursement, as the latter is linked with so many conditionalities dictated by the donors.

Upsurge in aid commitments by the multilateral and bilateral lenders does not really bring any new rays of hope for us, as it has failed to touch the specter of poverty that still haunts the teeming millions in the country. The record of success of foreign aid in poverty alleviation is more frustrating than what one usually thinks about it.

It is then no wonder that foreign aid has facilitated the expansion of the capitalist market economy and the culture of consumerism. In fact, that is what has happened to the most of the countries which received huge aid but could not stand on their feet. This glaring aid-dependent consumerism has serious implication for the economy, especially for savings and investment.

An unfortunate plight with foreign aid is that loan components have surged significantly over the last decade. The share of loan in the foreign aid package has swelled to 68 percent in the 2005-06 fiscal year from 11 percent in 1972-73. The share of grants which was 89 percent in the fiscal year 1972-73 has now declined to 32 percent.

The decreasing grant components have resulted in a larger portion of loans in the total aid package and swelled per capita foreign debt by 21 times to nearly $140. Per capita debt burden of the country was $6.59 in 1973-74 fiscal year. As the country's foreign loan continues to soar up, every child is born in Bangladesh with a burden of foreign debt to the tune of Tk 10,000.

What really pains every conscious citizen is that the annual debt service payment of Bangladesh constitutes 13.5 percent of the entire budget outlay. It is almost double of health sector allocation (6.6%) and only one percent less than the allocation for education (14.5%) which is the highest line item 2007-08 budget.

Bangladesh paid Tk 856 crore in the fiscal year 2001-02 as interest against foreign loan. This year Tk 4,098 crore has been earmarked for foreign debt servicing and this will be paid in foreign currency. Bangladesh will need to take more loans from the World Bank and IMF to pay the cumulative interest which has created a snowball effect on debt accumulation.

A particular aspect related to aid is that, it is a powerful tool to open up markets for the lenders in host counties. Only well-targeted aid sometimes makes a lot of sense. But long time dependency on it demolishes the potentiality of a country and cripples the domestic economy. Bangladesh is not an exception to this. But Bangladesh is not among those, which have refused to take further loans from the lenders after repaying the debts. Aid, according to them, is a harsh exploiter of the world's poor.

In fact, Bangladesh has got an aid addiction. The successive governments frantically tried to coax the lenders and donors for securing aid, despite the quality of grants and loans was often open to question. The caretaker government also could not surpass this predicament.

One cannot ignore the reality that has been revealed in the budget for 2007-08. Foreign grants and loans will contribute some Tk 10,403 crore, which is only 7.9 percent of the total budget outlay. Experts believe that this amount could be added to national exchequer by checking duty and tax evasion -- and thus the nation could be emancipated from indebtedness.

A.N.M. Nurul Haque is a columnist of The Daily Star.