DONOR AGENCIES VS DOMESTIC RESOURCES

FOZIA AROOJ
(feedback@pgeconomist.com)

Feb 20 - 26, 20
12

Pakistan has always been an aid- dependent economy. According to an estimate, the gross disbursement of overseas development assistance to Pakistan from 1960 to 2002 (in 2001 prices) was $73.1 billion, including bilateral and multilateral sources. According to a document released by the US State Department, Pakistan is the 3rd biggest recipient of US aid after Afghanistan and Israel.

South Korea can be a good example, once a poor country that ran on US aid, has transformed from the cottage industry producing footwear and garments to a global export powerhouse in a short span of 50 years. It freed itself of the shackles of foreign aid and now takes place among economic powers with per capita income of $19,136.

Foreign inflows come under two dominant categories, namely, grants and loans. The first type (grants) can be viewed as inflows intended to provide temporary and immediate relief of the developing economy in situations of emergencies.

On the other hand, the second category of transfers by the donor agencies are for long-term developmental purposes and are expected to be used for public investments.

In most of the developing and transition economies like Pakistan, non governmental organizations (NGOs) and microfinance institutions (MFIs) have access to loans and grants from bilateral and multilateral agencies. A large number of nongovernment organizations, community based organizations and rural co-operatives with savings and credit programs have emerged in recent years, but most of them, even after a long period of their operation, serve only a few households because of their limited institutional capacity and resources.

A deep insight at the operation of NGOs operating in Pakistan reveals that, apart from some of the national organizations and programmes, most of them are established by the government or international donors. These organizations are trying to spread their local programmes on a wider geographic scale but not for the sake of multiplier effects of the successful implementation of humanitarian projects. They just aim at enhancing their financial portfolios that can make up the infrastructural and human resource costs of the organization.

Moreover, whilst around 80 per cent of the international assistance given in the aftermath of last year's floods was to be spent by international NGOs, half of that amount is estimated to have been consumed by the NGOs themselves. Foreign aid workers would require offices, salaries, vehicles for use, thus directing a chunk of aid towards this direction.

Due to certain stringent conditions attached by donor agencies with the disbursement of funds and numerous other underlying problems, foreign aid extended by donor agencies does not promote faster growth but tends to impede it. It never supplements domestic savings and investment rather exacerbates balance of payments deficits leading to rising debt repayment obligations and the linking of aid to donor country exports. The nature of development aid business is such that large sums of donated money in fact return to the donor country in the form of contractual payments to consultants and manufacturers.

The foreign aid generally fuels the escalation of modern sector, thereby widening the gap in living standards between the rich and the poor in Third World countries. The billions of dollars in aid have distorted markets in Pakistan and subsidized the civil and military elite.

Furthermore, gross misappropriation and mismanagement of foreign funds is rampant. There are many major local organizations having spent much of the foreign funds they receive on the upkeep of their operations, with little left for the intended beneficiaries. Besides other adversities, this aid also increases inflation in the country when it is poured in unproductive fields or obsolete technology.

The biggest objection, which is imposed on foreign aid, is that donor countries make interference in the economic and political activities of the recipient country. The recipient country has to devise its economic policies in accordance with the wishes of donor countries or international financial institutions.

As a matter of fact, loans and grants from international development agencies can play a vital role in the promotion and development of the industry. However, there is a dire need for the establishment of an effective monitoring mechanism for institutions especially if sustainable humanitarian growth is to be achieved. The ultimate end of aid should be to ensure the mobilization of local resources for financing such institutions, thereby helping them to attain self-sufficiency at the national level. Thus, sensible policy lies in selective and carefully analyzed engagement with foreign aid, trade, and investment, as done by China and India.

Economic recovery of Pakistan can only be attained by refusing any form of unnecessary and conditional aid and assistance. If inevitable there has to be a secession of aid as a precondition for restructuring the economy to make it self-sufficient over time.

We have to rise to the occasion to help revive the faltering economy. Pakistanis have to pay taxes so that their government can refuse aid from others. There is a hope of an honorable Pakistan in the comity of nations only and only if all citizens demonstrate the willingness to discharge their responsibilities by abiding laws and paying taxes.