An analytical two-sector planning model for the Bangladesh economy has been developed in this paper. The model, essentially of the two-gap vintage, is specifically geared towards analyzing policy issues with respect to external assistance. Besides providing a numerical understanding of the effects of foreign aid on domestic resource mobilization, the model also points to the critical conditions that need to be fulfilled to realize desired objectives. The results indicate that the marginal productivity of external assistance is directly proportional to the marginal rate of savings in the economy. It is possible to obtain a high degree of self-reliance by 2000/2001 by a massive increase in foreign assistance between 1981/82 and 1986/87 accompanied by significant increases in saving and investment rates and by planned re-allocation of incremental resources. The model suggests that the use of labour intensive techniques can prevent worsening of the existing distribution of income in a significant way.