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Boon or bane?: Historical analysis of Pakistan’s foreign aid inflow
By: Haider Abbas

Due to enormously large accumulated foreign debt, harsh terms
and conditions of different types of aid agencies, as well as economic
and strategic interests of donors, Pakistan‘s experience of foreign aid
over the last several decades has not been quite satisfactory. This grim
reality has provoked a vigorous debate on the effectiveness of aid to
Pakistan.

Since independence aid inflow to Pakistan has a strong association
with geo-political interest of donors. Each successive government in
Pakistan relied on foreign aid to finance a significant proportion of
investment and import requirement for self-sustaining economic growth.
Pakistan’s dependence on foreign aid started in the 1950s. However,
gross foreign aid inflows were negligible during the fifties but in the
first half of the sixties witnessed a rapid increase.

The increase in aid inflow during the 1960s is connected with
Pakistan’s signing of mutual defence assistance agreements with the US
in the cold war era. Aid inflow of the 1980s can be visualised in
perspective of the Afghan war. In the 1990s, economic assistance to
Pakistan was cut off by the US and other multilateral donors when the
Afghan war ended. Aid inflow to Pakistan was further dropped down after
the nuclear tests in 1998 and the military takeover in 1999. Most
recently, aid inflow is a result of closer Pak-US ties after 9/11.

However, recently when the US has decided to withdraw its troops from
Afghanistan, at the same time its government has asked congress for a
sharp reduction of economic and security aid to Pakistan for the year
2014. According to Congressional Research Service (CRS), the Obama
administration has requested nearly US $1.2 billion economic and
security aid to Pakistan for the financial year 2014.This represents a
steep decline from total assistance of about $1.9 billion (excluding
Coalition Support Fund) during the financial year 2012.

This pattern of aid flows from US clearly vindicates that
geostrategic and political imperatives determine the direction and
amount of foreign aid. We have a chequered history of aid flows from the
US. The amount and flow of aid was not determined by the economic needs
of the people of Pakistan, but, rather, by the US’ geostrategic
policies and priorities.

Regardless of knowing all these facts, Pakistan governments’
inability to provide for security and prosperity of its own people has
led to questions about its sovereignty – whether in terms of its
monopoly of violence, fiscal solvency or human security. Despite
receiving large quantities of foreign aid, Pakistan is still away from
the stage of self-sustaining economic growth.

In this scenario Pakistan can certainly do better by following
India’s example of self-sufficient economic growth. India has
transformed itself from an aid-receiving to an aid granting state, while
Pakistan must grovel at the table of the International Monetary Fund
(IMF) and other multilateral and bilateral donors. Indeed, it is India’s
financial success that has drawn global capital to its door step.

Today countries help Pakistan because they expect that doing so will
advance their interests, not necessarily those of Pakistan and its
citizenry. Pakistan will not free itself of manipulative outsiders
unless it raises its own revenue from domestic resources, exerts control
over its own territory, takes care of its citizens, and becomes a
responsible partner in managing-rather than undermining- regional and
international security. In other words it must, first, exert its
sovereignty itself.

To do this we need to reduce our dependence on aid through embarking
on policies of self-reliance. Aid should never be taken as a permanent
solution for filling financial gaps as foreign assistance is not a
long-term solution. Open-ended commitments only create perverse
incentives and do not contribute to the growth and development of the
recipient country. What we need is to put our house in order.
Enhancement of the tax base, promotion of trade and foreign direct
investment, and development of credit markets can turn out to be better
and longer-term alternatives to aid and can go a long way in ensuring
sustainable economic growth.

Source: http://tribune.com.pk/story/710019/boon-or-bane-historical-analysis-of-pakistans-foreign-aid-inflow/

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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.