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Is US help so critical for Pakistan?
BY DR ISHRAT HUSAIN
31 May 2007
http://www.khaleejtimes.com/Display...ntinent_May1213.xml§ion=subcontinent&col=
A SPATE of editorials, articles, columns and reports emanating from the United States in the last few months have vehemently argued that continuation of its assistance to Pakistan should be made conditional upon the progress in the achievement of US's strategic goals in the region.
The resonance of these assertions is loudly reverberated and echoed in the media of Pakistan and in the popular discourse in the country.
This article tests the validity of these assertions with the help of empirical evidence and attempts to disentangle the myths from the reality.
The US economic and military assistance to Pakistan since September 11, 2001 has come in four main forms (a) Debt relief (b) Military assistance (c) Economic assistance (d) Emergency relief assistance. In addition, the US government has been reimbursing in US dollars the expenditures incurred by the Government of Pakistan in supplying logistics services to US troops in Afghanistan. Although, normally this reimbursement should not be considered part of any aid package, it has been so included in this analysis for the sake of comprehensiveness. If this broader definition of US assistance is accepted then the next step is to calculate the quantum of this assistance.
In financial year 2002, the US provided debt relief of $600 million and in financial year 2003, used Economic Support Fund of $186 million to retire bilateral US debt of $1 billion. Between financial years 2004 and 2007, the US has provided budgetary support of $800 million under Economic Support Fund. In addition it also funded (a) Development assistance (b) Child survival and health programme and (c) PL 480 Title II in the amount of $530 million. The US is committed to further $600 million in financial year 2007-08 and financial year 2008-09 under Economic Assistance.
Under earthquake relief and reconstruction, the US has provided $105 million and has committed to allocate an additional amount of $200 million for reconstruction in the AJK and NWFP.
The military assistance that has been received so far is approximately $900 million with further commitment of $600 million in the coming two years.
Finally, the US has been reimbursing the Government of Pakistan $80 million a month for the logistic services provided to the US troops in Afghanistan since 2002. This amount aggregates to $4.8 billion in all and is shown under the services account in the current account balance. This amount is payment for expenditure that Pakistan has been incurring out of its own resources in Pakistani rupees and is not included in any standard definition of "aid". But we have included the reimbursements as aid in order to address the arguments raised by the proponents of "Pakistan dependent upon US" theory.
Aid flows
The annual flows Pakistan has received during the last six years amount to approximately $1.75 billion from all types of US assistance â military, economic, and reimbursements for logistics support. Of these flows, the aid â military and economic â accounts for $787 million etc annually.
In order to examine the importance of these flows to Pakistan's economy and evaluate the dependence of our economy on US, four key indicators are selected (a) US assistance as per cent of Pakistan's total budgetary expenditure (b) US assistance as per cent of Pakistan's total foreign exchange receipts (c) US assistance as per cent of total current receipts of Pakistan and (d) US assistance as per cent of total value of imports of Pakistan. These indicators have been carefully chosen to see as to how much damage will accrue to our balance of payments and fiscal accounts if the US for one reason or the other abruptly decides to withdraw its assistance of all types.
The results of this analysis indicate that even under the worst case scenario of zero aid flows and no reimbursements for logistics services rendered to the US troops, the diminution in foreign exchange receipts or budgetary resources would be insignificant â varying between 4.5 per cent of total foreign exchange receipts to 7.2 per cent of total budgetary expenditures. The other two indicators i.e. the proportions of total value of imports and current account receipts financed by US assistance account for 6.4 per cent and 5.8 per cent, respectively â not worrisome amounts.
No serious risks
Some observers would argue that the World Bank and ADB assistance to Pakistan would also be reduced if the US takes action to suspend its financial aid. Although this assumption is open to question and debate but even if it is accepted at its face value the total gross flows of foreign aid from all official bilateral and multilateral sources (excluding reimbursement for services) amount to 8.5 per cent of foreign exchange receipts of Pakistan in 2006-07 and 10.8 per cent if the reimbursement for services is included.
This worst possible case scenario although possible but not probable will have a consequence in form of immediate drawdown of our foreign exchange reserves from $13.5 billion to $9.5 billion. In case this scenario materialises, the policy action to follow would be adjustment in our imports and other foreign exchange expenditure, attracting larger volume of remittances and foreign direct investment and recourse to international capital markets. In none of these highly unlikely scenarios, Pakistan's economy faces any serious risk.
UK assistance
It is also well-known that the UK Government provides much larger volume of economic assistance to Pakistan than the US does. The Department for International Development (DFID) of UK has raised its annual grant aid to Pakistan from £240 million ($480 million) to £480 million ($960 million). Most of this aid is targeted at education, health, social development i.e. largely on the development of the people of Pakistan.
Despite such hefty amounts involved â more than the entire US economic and military assistance there are very little noises from the British Parliament or think tanks or even the influential modes that Pakistan should be penalised "as it is not doing enough to help meet the British objectives in Afghanistan."
There is a sense of maturity in the UK that recognises that these kinds of tactics in fact end up alienating and antagonising public opinion in the recipient countries rather than alter their behaviour. A better way is to engage in dialogue, listen to and understand the perspective and limitations of the recipient as to why there is divergence in the views of the two sides and what can be done to set things right.
There is no doubt that the Government of Pakistan and the people of Pakistan do very much appreciate the financial support demonstrated by the US government at the critical moment of Pakistan's economy. Several other collateral benefits accrued to the economy as a result of the US bilateral debt forgiveness, strict security of remittances through informal channels, the US Exim Bank and OPIC's highly positive initiatives towards Pakistan and the withdrawal of all different types of economic sanctions US Administration played a helpful role in ensuring larger volume of concessional assistance to Pakistan through the IMF, World Bank and Asian Development Bank. The prompt and generous response to the earthquake of October 2005 by the US Government, private sector and non-government organisations left a very favourable impression in the minds of Pakistanis.
National interests
US is an important trading and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this analysis is not to show that we care little for our friendship with the government or the people of the United States.
As a matter of fact we should expand our relations with the United States in the areas of higher education, science and technology transfer, trade, investment and labour flows.
We should also seek duty free market access for the products exported from the Reconstruction Opportunity Zones (ROZs) in the tribal areas as part of our joint strategy to provide economic benefits to the 3 million population living on the border with Afghanistan. But the main argument of this analysis is that the pundits in the US who believe that they can use the leverage of US official aid to paralyse Pakistan's economy are sadly mistaken as they have an exaggerated sense of the importance of these official flows.
Any attempt to impose conditions that impinge upon the sovereignty of Pakistan or conflict with our own national interests can be resisted without creating a serious dislocation to our macro economic stability or growth prospects.
The analysis explodes the popularity held myth that Pakistan is so dependent on foreign assistance for its economic survival that pulling the plug would force it to yield under this pressure. These sages and their followers in Pakistan are well advised to seriously reconsider their basic premise.
Successive governments in Pakistan since 1974 whether military, democratically elected or transitionary had successfully resisted all kinds of pressure placed upon them for discontinuing the nuclear programme under worse economic conditions than prevail today. There is no doubt in my mind that the present and the future governments of any political persuasion would be able to meet the highly unlikely event i.e. abrupt withdrawal of US economic and military assistance of all types and forms with courage and fortitude because the capacity of the country to respond to this and other exogenous shocks has become much resilient in the recent years.
Pakistan withstood shocks
During the last seven years Pakistan has successfully withstood the internal and external shocks of severe and prolonged drought, mobilisation of Indian troops on the borders, terrorist attacks on foreign nationals, the war against terrorism in Afghanistan, and the oil price hike.
None of these shocks, some of which are more severe than $750 million provided by the US has hurt the macro-economic stability or growth. Oil import bill that went up by almost $2 billion in a single year was more devastating in nature but the economy grew at 6.6 per cent despite this shock.
In 1947 some of our detractors within and outside Pakistan had predicted the imminence of our economic collapse within a few years.
They were proved wrong by the hard work and sacrifices of 60 million Pakistanis in those difficult and early days of our independence.
The same kind of noises are being heralded today 60 years later that the present revival of economic growth is a bubble created by the large dose of US assistance.
The 160 million hard-working people of Pakistan will once again prove these voice, and lobbies wrong by sustaining rapid growth and reducing poverty sooner than later.
The writer is a former governor of State Bank of Pakistan.
BY DR ISHRAT HUSAIN
31 May 2007
http://www.khaleejtimes.com/Display...ntinent_May1213.xml§ion=subcontinent&col=
A SPATE of editorials, articles, columns and reports emanating from the United States in the last few months have vehemently argued that continuation of its assistance to Pakistan should be made conditional upon the progress in the achievement of US's strategic goals in the region.
The resonance of these assertions is loudly reverberated and echoed in the media of Pakistan and in the popular discourse in the country.
This article tests the validity of these assertions with the help of empirical evidence and attempts to disentangle the myths from the reality.
The US economic and military assistance to Pakistan since September 11, 2001 has come in four main forms (a) Debt relief (b) Military assistance (c) Economic assistance (d) Emergency relief assistance. In addition, the US government has been reimbursing in US dollars the expenditures incurred by the Government of Pakistan in supplying logistics services to US troops in Afghanistan. Although, normally this reimbursement should not be considered part of any aid package, it has been so included in this analysis for the sake of comprehensiveness. If this broader definition of US assistance is accepted then the next step is to calculate the quantum of this assistance.
In financial year 2002, the US provided debt relief of $600 million and in financial year 2003, used Economic Support Fund of $186 million to retire bilateral US debt of $1 billion. Between financial years 2004 and 2007, the US has provided budgetary support of $800 million under Economic Support Fund. In addition it also funded (a) Development assistance (b) Child survival and health programme and (c) PL 480 Title II in the amount of $530 million. The US is committed to further $600 million in financial year 2007-08 and financial year 2008-09 under Economic Assistance.
Under earthquake relief and reconstruction, the US has provided $105 million and has committed to allocate an additional amount of $200 million for reconstruction in the AJK and NWFP.
The military assistance that has been received so far is approximately $900 million with further commitment of $600 million in the coming two years.
Finally, the US has been reimbursing the Government of Pakistan $80 million a month for the logistic services provided to the US troops in Afghanistan since 2002. This amount aggregates to $4.8 billion in all and is shown under the services account in the current account balance. This amount is payment for expenditure that Pakistan has been incurring out of its own resources in Pakistani rupees and is not included in any standard definition of "aid". But we have included the reimbursements as aid in order to address the arguments raised by the proponents of "Pakistan dependent upon US" theory.
Aid flows
The annual flows Pakistan has received during the last six years amount to approximately $1.75 billion from all types of US assistance â military, economic, and reimbursements for logistics support. Of these flows, the aid â military and economic â accounts for $787 million etc annually.
In order to examine the importance of these flows to Pakistan's economy and evaluate the dependence of our economy on US, four key indicators are selected (a) US assistance as per cent of Pakistan's total budgetary expenditure (b) US assistance as per cent of Pakistan's total foreign exchange receipts (c) US assistance as per cent of total current receipts of Pakistan and (d) US assistance as per cent of total value of imports of Pakistan. These indicators have been carefully chosen to see as to how much damage will accrue to our balance of payments and fiscal accounts if the US for one reason or the other abruptly decides to withdraw its assistance of all types.
The results of this analysis indicate that even under the worst case scenario of zero aid flows and no reimbursements for logistics services rendered to the US troops, the diminution in foreign exchange receipts or budgetary resources would be insignificant â varying between 4.5 per cent of total foreign exchange receipts to 7.2 per cent of total budgetary expenditures. The other two indicators i.e. the proportions of total value of imports and current account receipts financed by US assistance account for 6.4 per cent and 5.8 per cent, respectively â not worrisome amounts.
No serious risks
Some observers would argue that the World Bank and ADB assistance to Pakistan would also be reduced if the US takes action to suspend its financial aid. Although this assumption is open to question and debate but even if it is accepted at its face value the total gross flows of foreign aid from all official bilateral and multilateral sources (excluding reimbursement for services) amount to 8.5 per cent of foreign exchange receipts of Pakistan in 2006-07 and 10.8 per cent if the reimbursement for services is included.
This worst possible case scenario although possible but not probable will have a consequence in form of immediate drawdown of our foreign exchange reserves from $13.5 billion to $9.5 billion. In case this scenario materialises, the policy action to follow would be adjustment in our imports and other foreign exchange expenditure, attracting larger volume of remittances and foreign direct investment and recourse to international capital markets. In none of these highly unlikely scenarios, Pakistan's economy faces any serious risk.
UK assistance
It is also well-known that the UK Government provides much larger volume of economic assistance to Pakistan than the US does. The Department for International Development (DFID) of UK has raised its annual grant aid to Pakistan from £240 million ($480 million) to £480 million ($960 million). Most of this aid is targeted at education, health, social development i.e. largely on the development of the people of Pakistan.
Despite such hefty amounts involved â more than the entire US economic and military assistance there are very little noises from the British Parliament or think tanks or even the influential modes that Pakistan should be penalised "as it is not doing enough to help meet the British objectives in Afghanistan."
There is a sense of maturity in the UK that recognises that these kinds of tactics in fact end up alienating and antagonising public opinion in the recipient countries rather than alter their behaviour. A better way is to engage in dialogue, listen to and understand the perspective and limitations of the recipient as to why there is divergence in the views of the two sides and what can be done to set things right.
There is no doubt that the Government of Pakistan and the people of Pakistan do very much appreciate the financial support demonstrated by the US government at the critical moment of Pakistan's economy. Several other collateral benefits accrued to the economy as a result of the US bilateral debt forgiveness, strict security of remittances through informal channels, the US Exim Bank and OPIC's highly positive initiatives towards Pakistan and the withdrawal of all different types of economic sanctions US Administration played a helpful role in ensuring larger volume of concessional assistance to Pakistan through the IMF, World Bank and Asian Development Bank. The prompt and generous response to the earthquake of October 2005 by the US Government, private sector and non-government organisations left a very favourable impression in the minds of Pakistanis.
National interests
US is an important trading and investment partner of Pakistan and we should continue to remain friends with this superpower. The purpose of this analysis is not to show that we care little for our friendship with the government or the people of the United States.
As a matter of fact we should expand our relations with the United States in the areas of higher education, science and technology transfer, trade, investment and labour flows.
We should also seek duty free market access for the products exported from the Reconstruction Opportunity Zones (ROZs) in the tribal areas as part of our joint strategy to provide economic benefits to the 3 million population living on the border with Afghanistan. But the main argument of this analysis is that the pundits in the US who believe that they can use the leverage of US official aid to paralyse Pakistan's economy are sadly mistaken as they have an exaggerated sense of the importance of these official flows.
Any attempt to impose conditions that impinge upon the sovereignty of Pakistan or conflict with our own national interests can be resisted without creating a serious dislocation to our macro economic stability or growth prospects.
The analysis explodes the popularity held myth that Pakistan is so dependent on foreign assistance for its economic survival that pulling the plug would force it to yield under this pressure. These sages and their followers in Pakistan are well advised to seriously reconsider their basic premise.
Successive governments in Pakistan since 1974 whether military, democratically elected or transitionary had successfully resisted all kinds of pressure placed upon them for discontinuing the nuclear programme under worse economic conditions than prevail today. There is no doubt in my mind that the present and the future governments of any political persuasion would be able to meet the highly unlikely event i.e. abrupt withdrawal of US economic and military assistance of all types and forms with courage and fortitude because the capacity of the country to respond to this and other exogenous shocks has become much resilient in the recent years.
Pakistan withstood shocks
During the last seven years Pakistan has successfully withstood the internal and external shocks of severe and prolonged drought, mobilisation of Indian troops on the borders, terrorist attacks on foreign nationals, the war against terrorism in Afghanistan, and the oil price hike.
None of these shocks, some of which are more severe than $750 million provided by the US has hurt the macro-economic stability or growth. Oil import bill that went up by almost $2 billion in a single year was more devastating in nature but the economy grew at 6.6 per cent despite this shock.
In 1947 some of our detractors within and outside Pakistan had predicted the imminence of our economic collapse within a few years.
They were proved wrong by the hard work and sacrifices of 60 million Pakistanis in those difficult and early days of our independence.
The same kind of noises are being heralded today 60 years later that the present revival of economic growth is a bubble created by the large dose of US assistance.
The 160 million hard-working people of Pakistan will once again prove these voice, and lobbies wrong by sustaining rapid growth and reducing poverty sooner than later.
The writer is a former governor of State Bank of Pakistan.
. 
I said charity, thus on individual level! That is all the different muslim trust which are giving charity, even ordinary people giving charity (not zakat or fitrana). You are probably forgetting the good sheikhs in arab countries spending millions of money in the name of ALLAH, just like in Pakistan (maybe you are not familiar with this sadqa culture yet???). Just because this article didnt mention any aid from arab countries, it does not mean you get nothing from them. Why dont u come up with some figures. Even during our nuclear programme, don't forget Libyan, Saudi money - even though they had to be channeled through different trusts so nobody could get a clue!
