Foreign aid flow a politically motivated process

Stealing aid has become a principal way in which elite make money

ISLAMABAD: The new development agenda of the world has been set under the rubric of Sustainable Development Goals (SDGs) with expected cost of $3 trillion.

With so much of its focus on appreciating the scarcity of world resources and its sustainable utilisation, a natural query that stems is what makes these $3 trillion less scarce?

In this regard, the SDGs require an even larger role of foreign aid to developing countries unlike its predecessor the Millennium Development Goals (MDGs) as its goal entails to “mobilise additional financial resources for developing countries from multiple sources.”

Recently, a free Massive Online Open Course has been started by the World Bank group with the sole attention on how to finance this development prescription. Apparently it appears that advocates for such top-down development programmes have ignored the simple dictum of project planning.

However, before the logistics of this programme can be resolved, the question arises on how effective is foreign aid.

Politics of foreign aid

Foreign aid was meant to be development-motivated. However, it seems that foreign aid flows to Pakistan have been and are a politically motivated process.

American aid to Pakistan has led to two major boom periods and both of them coincided with two geo-political events.

The first boom of foreign aid to Pakistan resulted in a 640% growth in American foreign assistance during the Soviet invasion of Afghanistan which began in 1979. Ironically, the aid flows plunged from $542 million in 1990 to $101 million in 1991.

The most recent bulge in American generosity was right after the 9/11 terrorist attacks when a better share of aid flows were militaristic in nature. As American government decided to withdraw its troops from Afghanistan in 2011, the aid funds also followed suit as they plummeted from almost $2 billion in 2011 to $741 million in 2013.

But where was the development motivation during the 1990s when US aid flows averaged just a flimsy $39 million as American government became wary of Pakistan’s nuclear designs? By the same vein, as American influence in the region recedes and China’s increases, this trend is once again observed in aid flows to Pakistan from China during the last four years.

Aid curse or blessing?

Critics of foreign aid point to its negative ramifications on institutional quality of the recipient country as it generates perverse incentive by encouraging state-led pilferage. Hence, they contend that aid has become a resource curse.

Pakistan’s score in the Corruption Perception Index (CPI) averaged 2.3 during the first half of 2000s which saw average Official Development Assistance (ODA) clocking in at 1.95% of GDP.

The second half of 2000s and early 2010s witnessed improvement in CPI score as it averaged 2.4 (2006-2010) and 2.7 (2010-2014). ODA averaged 1.43 (2006-2010) and 1.05% of GDP (2010-2014).

It is a no-brainer that aid funds are regularly pinched upon in Pakistan. This has led experts to conclude that Pakistan has become a country where stealing foreign aid has become a principal way in which the elite make money.

Vicious aid cycle

Proponents of foreign aid refer to its capacity-building benefits. These benefits have eluded Pakistan due to multiple factors. One of these is that the share of project aid to Pakistan averaged only 39% from 2006-07 to 2014-15 which plays a vital role in capacity building.

Similarly, funds meant as balance of payments cushion averaged 41.2% during the same reference period. A more striking fact is that grant-type component of foreign aid averaged 16% from 2006-07 to 2014-15, well shy of its required level of 25%.

A country where almost two-thirds of the population live in poverty and a public debt of 65% of GDP, additional aid has made Pakistan a permanent customer of the World Bank and the International Monetary Fund.

More than its financial impact, aid brings influence and deprives Pakistan of crises, which are opportunities of learning and course correction.

Aid also captures brightest minds that Pakistan produces, especially in the fields of economics and governance, and by this brain gain, aid essentially undo all developmental ethos.

ali salman is the founder and Executive Director of PRIME Institute, an independent think tank based in Islamabad and jazib nelson is a research assistant

Published in The Express Tribune, November 30^th,  2015.

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