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Outline
1- Introduction
Foreign aid is neither good nor bad, but it depends on the objectives and policies of the recipients, making it a blessing or a curse. Whereas, in Pakistan’s case, several challenges like the absence of policies, extreme debt burdens, and incapable institutes have served to degrade the value of aid. However, if dealt with these challenges, foreign aid can emerge as a game changer by stimulating economic growth, introducing technical and industrial advancements, and providing multiple job opportunities in Pakistan.
2- Understanding the importance of foreign aid for a country
3- What are the major hurdles in the way of foreign aid in Pakistan?
- ✓Incapability of the institutional performances
- Case study: Lack of rescue programs during flood crisis despite of receiving $8 billion foreign aid for recovery efforts, Pakistan Information Minister.
- ✓Absence of effective fiscal and trade policies
- Case study: Countries with good policies and significant amounts of aid (3-7% of GDP) perform very well, according to a global survey.
- ✓Excessive debt burdens
- Case study: $45.05 billion out of $77.78 billion foreign aid to Pakistan was utilized as the payment of debts, Pakistan Economic Forum’s report.
- ✓Inconsistency in the political regimes
- Case study: In spite of huge inflows of foreign aid to education sector of Pakistan, major educational outcomes have always been low in the country.
4- What can be the prospects of foreign aid in Pakistan?
- ✓Stimulation of the economic growth
- Case study: “Although Pakistan is receiving huge amount of foreign aid to keep its economy at a safe level, it has been a graveyard of development projects due to lack of management”, Imran Khan.
- ✓Elevation of the foreign reserves
- Case study: “Foreign aid attracts remittances and portfolio investments in a country, only if it is utilized properly”, British Economist.
- ✓Introduction of industrial and technological advancements
- Case study: Gawadar port is expected to become the economic hub for the region in the upcoming years owing to CPEC project.
- ✓Rise in the employment opportunities
- Case study: CPEC has created more than 75,000 direct jobs of different categories and around 200,000 indirect jobs for Pakistanis, CPIC.
5- How can Pakistan counter the challenges of foreign aid in order to reap out maximum prospects?
- ✓To reform the laws and ensure their implementation
- ✓To promote democratic norms for a national leader
- ✓To utilize the fund more intellectually
6- Critical Analysis
7- Conclusion
Foreign aid, undoubtedly, plays a constructive and curative role in strengthening a nation’s foundation upon which their social, political, and economic values standstill. However, it is not in the favor of those countries that cannot reap the maximum benefits out of it. By referring to some developing countries, Pakistan has been one of them, where foreign aid has been the largest foreign capital inflow and has played a critical role in the economic development of the country. Consequently, the nation has now been wrestling with the lack of beneficial aid inflows, as there is a severe rise in political chaos leading to a lack of accountability and transparency in the check and balances of these aids. Moreover, due to excessive debt burdens on Pakistan for decades, the nation has not been able to extract the possible benefits of foreign aid, as all the incoming capital is served to pay the debts instead of investing in any progressive developmental projects. However, if tackled sagaciously, foreign aid can ultimately help the country by stimulating its economic progress and development, increasing the inflow of foreign capital, and promoting modern technological advancements in the country. Moreover, it can also provide skilled job opportunities to the citizens of the recipient country if dealt with authentically and sincerely. Thus, the essay delineates the hurdles in the way of foreign aid. Also, it highlights the prospects of foreign aid if achieved effectively.
Before moving towards the hurdles in the way of foreign aid inflows, it is imperative to understand the importance of foreign aid for a country. Foreign aid, no doubt, holds a key importance in the uplifting of an underdeveloped country to walk hand in hand with the developed ones. As Bill Gates, the president of the Bill and Melinda Gates Foundation, said, “Aid is an effective way to lift the poor out of poverty.” Moreover, it serves as a constructive tool for developing countries, as it helps the countries to improve their population well-being, facilitate their economic and institutional developments, assist in any emergency situations, and ensure their participation in the global market. For instance, according to the World Bank Statistics, USAID has provided more than $668 million in humanitarian assistance for the Ethiopia emergency drought response in FY2022. Similarly, foreign aid ensures the survival of a state, drowning in any devastating condition by providing them assistance in all possible ways. Hence, foreign aid plays a significant role, specifically for developing countries, in order to uphold the advanced challenges of the global village.
Now, in the account of enlightening the importance of foreign aid, Pakistan, being a developing country, has always looked upon foreign aid for its survival since its inception. However, the massive challenges faced in the way of foreign aid have deteriorated the socio-economic fabric of Pakistan. To discuss further, the personal interests of the government and the non-serious performance of the institutions have dragged it to a stage where foreign aid has got no space to prosper and served only as a personal opportunity for some elites, as the received aid is concentrated only in the hands of the major political entities and end up entertaining the vested interests of them instead of the country. According to Pakistan Information Minister, Pakistan has received around $8 billion foreign aid for recovery efforts following the devastating floods in July 2022. Despite receiving such a huge amount of foreign aid, the state has been unable to recover the affected lives and areas, as, unfortunately, all of the aid has turned out to be a donation for the personal interests of the government. So, due to the incapability of the governmental institutions, foreign aid has not been able to give what it is meant to be.
Furthermore, there is no doubt in the saying that foreign aid works better in countries with effective fiscal and trade policies. However, in the absence of such policies, foreign aid becomes nothing but a curse for the recipient country. Unfortunately, the fiscal, monetary, and trade policies in Pakistan have been so exhausting that it has caught the country in the trap of mismanaged, non-efficient inflows of aid, blocking it from delivering the promised benefits. Although Pakistan has been receiving massive amounts of aid since its inception, no advancements have been seen in the elevation of its export sectors, owing to its awful trade policies. According to a survey, Countries with good policies and significant amounts of aid (3-7% of GDP) perform very well, better than can be explained by other variables in the growth regression. Contrarily, the foreign aid coinciding with the existing inappropriate policies in Pakistan has made it dissipate in unproductive government consumption only. To sum up, the lack of efficient policies has exploited the contribution of foreign aid in the developmental planning of the country.
In addition, the effective role of foreign aid in Pakistan is unable to witness, as most of the receiving aid is used to pay off the existing debts. Unfortunately, due to a lack of effective administration, anticipating policies, and constant political concerns, the state has been under massive debts for decades, which has, ultimately, resulted in the engulfment of the remaining aid for its payment of debts, leaving almost nothing for the developmental programs. According to the Pakistan Economic Forum’s report, out of the total disbursement of $77.78 billion foreign aid to Pakistan during 1961-2021, $45.05 billion was returned to the donors as payment of the previous debts. Consequently, the main purpose of foreign aid gets staggered by stumbling upon the piles of remaining debts. Hence, excess of debt burdens serves as a speed-breaker for Pakistan to extract the maximum benefits out of foreign aid for its welfare and technical advancements.
Moreover, another challenge to foreign aid is the constant distortions seen in the political arena, making the aid unable to pave its way through the hurdles. In reference to the past disappointing experiences, it can be assuredly said that foreign aid has never achieved the desired targets that it promised to the recipient country mainly because of the irresponsible and inefficient political regimes in the country. According to a survey, in 2015, $649 million foreign aid was given by developed countries and other international financial institutions to education sector of Pakistan to achieve the United Nations Millennium Development Goals (MDGs), and in spite of this huge inflow of foreign resources, major educational outcomes have always been low in the country. In regard to this, due to the lack of political commitment towards the implementation of the assigned fund to the relevant sector, the government of Pakistan has not been able to structure the basic foundation of the education system in the last 60 years. So, inconsistency in the political regimes has made the country suffer despite receiving foreign aid.
In contrast to the aforementioned discussion, it is fair enough to say that foreign aid has not been able to uplift the country’s social and economic sectors due to the ever-existing challenges in its way; nevertheless, it can be proved as a total blessing if handled constructively. The effective inflow of foreign aid and encountering proper policies and implementation programs can elevate the level of economic prosperity at a vast scale, as the funds will be allotted to the required departments like industrial advancements, infrastructural managements, and technical growth, collectively contributing in the foreign reserves of the nation. As Imran Khan, the former PM, said in his speech, “Although Pakistan is receiving huge amount of foreign aid to keep its economy at a safe level, it has been a graveyard of development projects due to lack of management.” So, contrary to this, wiser use of the aids, particularly in the field of economic developments, can undoubtedly ensure the economic stability of Pakistan.
Moreover, if the government takes the required steps and reforms the policies regarding the trade, foreign aid can emerge at the frontline as a game changer for Pakistan’s drowning economy, consequently paving the way for its export sector to flourish in the nation. As a result, the inflow of foreign reserves in the country will be ensured at an extreme scale, making the state economically strengthened. According to a British Economist, “Foreign aid attracts remittances and portfolio investments in a country, only if it is utilized properly.” In accordance with this, multiple investment programs will enter the country, ultimately ensuring the means of foreign reserves in the country, which goes parallel with the social and economic development of the country.
Further, as mentioned before, foreign aid can directly ensure the inflow of foreign revenues in the country. To add more to this, it is clear as crystal that foreign reserves bring industrial and technical advancements simultaneously, for foreign revenues attract the investors to present their services and initiate cooperative projects in the recipient country, which is a major source of shifting the technical knowledge from the ‘Great Masterminds’ to the compacted minds of the developing nations. For instance, CPEC can surely be quoted as an example here, due to which Gawadar port is expected to become the economic hub for the region in the upcoming years. These industrial interactions of Pakistan with the Economic Giants, like China and others, can certainly ensure its international recognition. Hence, such developmental advancements can be termed as a game-changer for the infrastructure of Pakistan.
Last but not least, due to the effective utilization of foreign aid in the technical and industrial departments, instead of using them for the government’s own personal interests, the uplift in the technical-based employment opportunities will be ensured, which can consequently instil managerial skills in the labours and introduce them to the modern technologies within their own land, resultantly, upbringing a skilled human capital in the country. According to the China Pakistan Investment Cooperation (CPIC), CPEC has created more than 75,000 direct jobs of different categories, from high-skilled and medium-skilled to blue-collar jobs. Apart from this, it is believed that CPEC has also created more than 200,000 indirect jobs for Pakistanis. Similarly, further execution of such kind of projects can significantly offer technical expertise and skilled-based opportunities for the working class of Pakistan.
Moreover, it is not an issue that can never be resolved, as several pragmatic measures, if taken sagaciously by the Government of Pakistan, can undoubtedly assure the positive outcomes of foreign aid. First, aid itself is neither good nor bad, but it is the objectives and policies of the donors and the recipients that make it a blessing or a curse. So, the reformation of the laws and policies is the utmost need of the hour. By restructuring the laws and industrial policies like import substitution or export promotion, the effective contribution of the aid to industrial development can be witnessed. Hence, the utilization of foreign aid according to its requirement in the relevant sectors, instead of feeding the elite’s vested interests, can assuredly serve the progress of society.
Second, in Pakistan, as a democratic state, there should be proper execution of the democratic norms and regulations so that the representative of the state plays his effective role in the welfare and progress of the nation and use foreign aid for future developmental programs in order to secure the state’s image. Third, the utilization of aid intellectually can be one of the significant ways of bringing the prospects of foreign aid into real life. The investment of foreign aid in non-productive and short-termed projects can directly lead to the wastage of a splendid opportunity. So, there should be proper terms and conditions for the investment of these aids in the infrastructural advancement of the country to retain its importance in Pakistan’s economy. Thus, the above-mentioned measures, if tackled consciously, can turn the tables for the effectiveness of foreign aid in Pakistan.
To critically analyze, there is no denying the importance of foreign aid for the progress of Pakistan, as its basic purpose revolves around the welfare and blooming of the recipient country. Yet, on the other hand, irresponsible treatment of aid may distort domestic savings, introduce inappropriate technologies, increase the debt burden, and assist the donor in pursuing its interests above the economic and political interests of the recipient country. Hence, it is a need of the hour for the government of Pakistan to tackle the situation efficiently by making the maximum use of such aid in their own vested terms and interests and eliminate all the possible obstacles in the way of foreign aid to provide a transparent and accountable system for its propagation.
In a nutshell, although foreign aid holds a significant role in international relations, diplomatic recognitions, industrial alliances, and transmission of technological advancements in a country, its improper exertion exploits the available opportunities and leads the country to a devastating state both nationally and internationally. Hence it is a disappointing fact that despite receiving foreign aid for decades, particularly 1960s, Pakistan has been unable to reap maximum benefits for the sake of its developmental exhilaration, owing to its social, economic, and political chaos, which includes the supremacy of the institutional vested interests, debt burdens, improper trade policies and non-cooperative political regimes. However, foreign aid can also be witnessed to serve the country’s welfare by upgrading the country’s infrastructure and boosting its economy, only if utilized effectively. Thus, foreign aid can be termed as a double-edged sword, depending on the way of its implementation.
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