Is Foreign Aid a Blessing or a Curse For Pakistan?

[RiazHaq]

Haq's Musings: Foreign Aid to Pakistan: Blessing or Curse?

This year's Nobel Prize winning economist Angus Deaton of Princeton University considers foreign aid to developing nations a curse like the oft-mentioned resource curse of energy and mineral-rich nations of Africa and the Middle East.

Deaton has studied poverty in India and Africa and spent many decades working at the World Bank whose charter it is to fight poverty. He argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations' governments and slowing their growth and hurting the poor in the process. Prof William Easterly of New York University has published a paper titled "Can Foreign Aid Buy Growth?" that supports the view that increase in foreign aid has reduced economic growth in Africa.


Source: William Easterly of NYU


In addition to being recipients of foreign aid, most African countries are also rich in resources ranging from oil and gas to diamonds and metals. Yet, their people are among the poorest in the world. Why is it? The biggest reason appears to be theircorrupt leaders who pocket most of the proceeds from mining. They also siphon off a big chuck of foreign aid left after paying the expensive western consultants employed by aid agencies.




So where does Pakistan stand in this mix? Charts published by Washington Post show that Pakistan, in spite of not being a major exporter of minerals, enjoyed an averageeconomic growth rate of about 5% from 1970 to 2008. This is about the same as India's but higher than Brazil's and Turkey's GDP growth rates. The economic growth rates for China and Korea are much higher than Pakistan's in this period.

Foreign aid to Pakistan has also been more effective in promoting economic growth than much of Africa. Even Dambisa Moyo, author of "Dead Aid" and a critic of western aid, acknowledges that the US aid for "the Green Revolution in India (and Pakistan) played vital roles in economic (re)construction" of the South Asian nations in 1960s and 1970s. The South Asian subcontinent could have faced starvation without this aid.

One of the key reasons for the success of Green Revolution was the ability of the human capital in India and Pakistan to absorb the technological knowhow that it brought along with money. Ms. Moyo offers the same reason for the success of Marshall Plan aid in Europe.


Foreign Aid to Pakistan as Percent of GDP Source: World Bank


US aid to Pakistan after the Green Revolution has been much smaller as percentage of the nation's GDP and much less effective. Total foreign aid to Pakistan has dramatically declined from a peak of over10% of GDP to less than 2% of GDP now, too little to impact economic growth even if it is utilized better.

The expected size and speed of the Chinese FDI of $46 billion in energy and infrastructure is much more likely to spur Pakistan's economic growth than the western aid has been in the recent past. It will put Pakistan on a path to rely much more oninvestment and trade than on aid or debt for its foreign exchange earnings.

Related Links:

Haq's Musings

Aid, Investment, Trade and Remittances for Pakistan

Declining Investment Hurting Pakistan's Economic Growth

Pak-China Industrial Corridor to Boost Investment and Trade

Pak Army Completes Over Half of CPEC Western Corridor

Pakistan Economic History 1947-2010

Top Global Fund Investor Bullish on Pakistan

Culture of Corruption in Pakistan


Haq's Musings: Foreign Aid to Pakistan: Blessing or Curse?

 

[salarsikander]

Hi,

This reminds me of a very famous Chinese saying '' Give man a fish and you will feed him for a day. Teach a man to fish and you will feed him for the rest of lifetime.

 

[VCheng]

Nobody is forcing Pakistan to accept aid or loans. It does so by its own choice.

 

[Hamartia Antidote]

Hi,

This reminds me of a very famous Chinese saying '' Give man a fish and you will feed him for a day. Teach a man to fish and you will feed him for the rest of lifetime.

Nobody is forcing Pakistan to accept aid or loans. It does so by its own choice.

But can you force people to fish?

 

[VCheng]

But can you force people to fish?

Only those who got nuttin' better to do.

 

[Solomon2]

This reminds me of a very famous Chinese saying '' Give man a fish and you will feed him for a day. Teach a man to fish and you will feed him for the rest of lifetime.

What the Chinese do not say is that if you teach a man to fish you're then responsible for his and his descendants' bad choices in perpetuity. Which is how many Pakistanis think of Americans, yes?

 

[Thəorətic Muslim]

There are some misconceptions in how foreign aid works.

Foreign Aid:

1. The aid is used by the generous nation in paying for the supplies that it wants to send to the receiving nation. Up to 85% of all USAID funding allocations go to US contractors/ suppliers/ NGOs.
   • USAID pays for GMO seeds, made my Monsanto, to ship to Pakistan. Keep in mind GMO seeds are modified so that their output is higher by sacrificing the need to divert resources to produce offspring seeds. All the while the seeds have to be transported on US owned/flagged transport vassals.
2. Aid comes with conditions
   • Most of the time these conditions are to reform corrupted/ rotting public institutions, matching funding for certain industries (health care/ education) to offset fungibility.
3. Political Clientelism.(Self Explanatory)

Now all of this is good and bad. Lets just take the Foreign Aid offered by the US.

The requirement for 85% of all the aid funding be used to pay for services and goods supplied by US owned companies provides the quality guarantee. Malaria, Smallpox, Polio are being eradicated thanks to the quality standards set by the FDA in producing the vaccines and mosquito nets. All despite the fact that Aid towards healthcare received the lowest percentage of funding.

Many times holding a carrot with a stick offers greater incentive than just using a stick to force reform. Countries that took aid from the IMF and carried out the austerity measures experienced greater economic growth in the long-term.

Take a look at the following chart:

Rather than posting fancy tables with statistical data, the chart offers greater focus and understanding. Year -1 measures the amount of aid given to a nation that is not on the UN Security Council seat ~$100. Now the country in question is elected to the seat, Year 0, ~$150. As the years go on greater and more amounts of aid is given to that country. Since each country is elected for 2 years, the aid goes down following the replacement.

The costs of Aid.

Lets take a look at Africa. No one can argue that there is a great Aid Dependency relationship. A short leash controls the policy makers of each government, where rather than developing economic policies, building cooperation/ census, energies are spent on interacting with NGOs and Foreign Governments. ie Keeping the money flowing into the country. Entire Ministries are used to report the results of projects for the donors, that itself accounting for 20-40% of the Ministry's operating budget.

Debt Financing

Billions of dollars each year are sent to pay for the interest rates of loans by African nations. Many of whose education budgets barely exceed $500 million. While the aid inflows barely exceed @20% of the debt output. Feel free to conclude.

Foreign Aid for Development Assistance — Global Issues <---- Good read with lots of graphs

 

[salarsikander]

What the Chinese do not say is that if you teach a man to fish you're then responsible for his and his descendants' bad choices in perpetuity. Which is how many Pakistanis think of Americans, yes?

Hi,

Typical response from An American JEWISH !

If only US was interested in teaching Pakistan HOW TO FISH, rather than force feeding and supporting at times the corrupt system. Much would have been different ( not that its their fault entirely, but being a superpower and as compared to support and assistance received by other countries, I believe it couldve much better)

But can you force people to fish?

Hi,
Dur, this US we are talking about !

A country that keeps its military for extension of its politics.

There more to picture than mere statements

Nobody is forcing Pakistan to accept aid or loans. It does so by its own choice.

Hi,

And for a person of your stature thinks it so black and white ?

How about orchestrating situations which favours and extension of American politics through its mighty influence and then forcing or should i say shoving down our throats.

Then again, I have seen quite many biased posts from you

 

[VCheng]

Hi,

And for a person of your stature thinks it so black and white ?

How about orchestrating situations which favours and extension of American politics through its mighty influence and then forcing or should i say shoving down our throats.

Then again, I have seen quite many biased posts from you

There is no bias in my post. It is 100% correct. What Pakistan does is by Pakistan's choice.

 

[salarsikander]

There is no bias in my post. It is 100% correct. What Pakistan does is by Pakistan's choice.

Hi,

Nope, Again I see defeatist mentality that will go to any length to support the wrongdoing or barbarism committed by a country, by claiming that everything is right ( even forced unjustified wars) in national interest.

How much callous it may sound, but does not absolve it of the reality or deceptively situation orchestrated by the most successful super power country

 

[Foxtrot-Bravo]

Blessing? Senseless people would consider it a blessing for Pakistan.

 

[VCheng]

Hi,

Nope, Again I see defeatist mentality that will go to any length to support the wrongdoing or barbarism committed by a country, by claiming that everything is right ( even forced unjustified wars) in national interest.

How much callous it may sound, but does not absolve it of the reality or deceptively situation orchestrated by the most successful super power country

There is nothing defeatist or callous in what I have said: Pakistan always does what is in its national interests as determined by its leaders, just like any other sovereign nation, including taking out loans.

 

[cloud4000]

All aid is a curse if a country becomes dependent on it like Pakistan has. In fact, its budget takes into account the aid it receives, loans it receives from multilateral institutions like IMF, etc. And don't forget Pakistan receives a substantial amount of military aid as well.

It's hard to be respected in this world when you are perceived to be a beggar.

 

[salarsikander]

Pakistan always does what is in its national interests as determined by its leaders

Hi,

It seems sir you are in active mood of displaying naivety here

 

[VCheng]

Hi,

It seems sir you are in active mood of displaying naivety here

Sir, regardless of what I think, please try to talk about if what I post here is incorrect in any way. It is not. What I have said above is correct.