US assistance: Differing perceptions

Published: May 19, 2011
The writer is dean and director of IBA, Karachi and a former governor of the State Bank of Pakistan

The writer is dean and director of IBA, Karachi and a former governor of the State Bank of Pakistan ishrat.[email protected]

Bilateral official economic assistance from developed to developing countries has always been loaded with political and foreign policy overtones of donors. In Pakistan, US economic aid has become a highly contentious issue due to the widely differing perceptions about its motivation and consequences among the donor and recipient countries. The debate about the future of this assistance has been reignited after Osama bin Laden’s capture by the US.

The popular narrative in the US as articulated by the media, a few think-tanks and congressmen rests on the premise that Pakistan is almost at the brink of bankruptcy and it is the US assistance that is providing the lifeline for sustenance. The penalty for deviant behaviour on the part of Pakistan should be severe and aid should be suspended, curtailed or withdrawn as it is only through these punitive measures that Pakistan would fall in line. Many other Americans believe that helping Pakistan is simply not worth the time ‘or money’ and that by doing so their hard-earned tax money is going down the drain. Given the high domestic unemployment rate and growing fiscal deficit it is better to stop the aid to Pakistan. A more benign variant prevailing among some US politicians and scholars is that Pakistan has been let down too many times by the US in the past and the best way to demonstrate our long term strategic commitment to Pakistan is to help the country in its pursuit of economic development. Both these approaches — stick or carrot — are based on the tacit assumption that the quantum of US assistance is so significant that it would be able to invoke the alteration in Pakistan’s behaviour. The fact of the matter is that — US aid does not help the government’s precarious fiscal situation in any meaningful way as only 12-15 per cent of the total amount is channelled for budgetary support.

In Pakistan also, there are several viewpoints about the efficacy and impact of US aid. A large number of Pakistanis are deeply resentful that the US has been able to obtain a disproportionate leverage on Pakistan’s policy space because of this paltry sum. The sovereign autonomy and dignity has been sacrificed and the country has been relegated to the status of a client state or ‘rent-a-state’. The long-term stability of the country is at risk because of this painful obsequiousness and submissive alliance.

Another group believes that by entangling in the war on terror, Pakistan has suffered enormous losses financially, economically, socially and psychologically and the compensation being paid by the US for this colossal damage amounts to almost nothing. It is estimated that during 2000-10, the US spent Rs2,000 billion in Afghanistan, Iraq and on beefing up domestic security. Pakistan’s share of this amount was Rs20 billion or 0.1 per cent, while the country has lost 35,000 civilians and soldiers, in addition to suffering disruption and dislocation of the economy, displacement of population, a several-fold increase in expenditure on military operations and internal security, almost virtual boycott of Pakistan by external visitors and a state of perpetual fear, etc. Out of the amount received, Rs8 billion under the Coalition Support Fund was simply reimbursement of the expenditures incurred on logistical support and supplies to Nato and US troops. A third group believes that despite the late Mr Holbrooke and Secretary Clinton’s best efforts, the divergence between the development priorities of the government of Pakistan and US aid remains wide. This is borne out by the report of the Centre for Global Development — the leading US think-tank on development issues (Note: I must disclose that I was a member of the Study Group that produced this Report). In assessing US assistance to Pakistan, the report notes that “the integration of development, diplomacy and defence has muddled the development mission and left the programme without a clear, focused mandate. The Kerry-Lugar legislation lists no fewer than 11 different objectives of US policy. As a result, the aid decisions are too often politicised and subject to short-term pressures. Overall, the programme ends up trying to do too much, too quickly.”

In light of these widely different perceptions it may sound ironical to suggest that it would be better for both the US and Pakistan that the US bilateral official assistance is terminated sooner than later. The growing ‘trust deficit’ between the two countries will be bridged when the US Congressmen would not have a stick to hurl at Pakistan and the pressure tactics they apply too openly and too frequently would come to an end. Ordinary US citizens would have no qualm that their taxes are being wasted in a country for which they have very little empathy. In Pakistan, the political leadership would have to take some tough decisions to mobilise domestic resources rather than always choosing the soft option of foreign aid as a substitute. The Pakistani intelligentsia would no longer be concerned about the loss of honour, sovereignty and dignity in exchange for a few billions of dollars.

How about the question so common in the vocabulary of both the Americans as well as many Pakistanis: Will Pakistan be economically able to cope with the loss of US assistance? The facts speak for themselves. Although the Congress authorised a tripling of development assistance in 2008 to $1.5 billion per year, the actual disbursements in Fiscal Year 2009 were $275 million and $676 million in Fiscal 2010, including $500 million spent on flood relief. Assuming that the whole $3 billion in economic and military assistance (including $1 billion under the Coalition Support Fund) is disbursed fully, this accounts for less than seven per cent of the total foreign exchange earnings of the country. The increase in export revenues and remittances in the current year was almost twice that amount. Had foreign direct investment flows not been disrupted (Pakistan received Rs5 billion in 2006-07) US aid would have become even less significant in the overall capital flows. World Bank data shows that net Official Development Assistance (ODA) from all sources to Pakistan in the last five years has averaged less than 1.5 per cent of Gross National Income (GNI). In 1990, ODA formed 2.7 per cent of GNI. Aid per capita from all sources in 2009 was $14 only. US aid also does not help the government’s precarious fiscal situation in any meaningful way as only 12-15 per cent of the total amount is channeled for budgetary support. These facts do not, by any means, indicate that the Pakistani economy will collapse if the US decides to withdraw its assistance.

When Secretary Clinton visits Pakistan we should thank her for the hard work the US administration did in getting the Kerry-Lugar legislation approved, but indicate that Pakistan would like to unilaterally withdraw from receiving assistance under it. Our strategic dialogue should continue to explore other avenues of cooperation. It is fair to assume that this step would lead towards building a strong and lasting relationship between the two countries based on mutual respect.

Published in The Express Tribune, May 20th, 2011.

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Reader Comments (43)

  • saleem khan
    May 19, 2011 - 11:17PM

    But this government have tried to impose RGST which was criticized from all quarters especially Anchor-turned-Heroes. Recommend

  • faraz
    May 19, 2011 - 11:19PM

    14 out of 20 billion dollars have gone to the military; it has no impact on the economy. We can live without US aid but not without US trade. The main argument against aid is that it allows the government to postpone the desperately needed tax reforms. Recommend

  • Qalandre
    May 19, 2011 - 11:28PM

    Well done. This is quite a prevalent rhetoric, especially in the more ‘enlightened’ circles that Pakistan should unilaterally withdraw. This article fares well in trying to support this mode of action.

    Pakistan should unilaterally withdraw from US assistance, but who makes foreign policy? Not, Dr. Ishrat Husain sadly. Recommend

  • Imran
    May 19, 2011 - 11:37PM

    Excellent article….I agree 110%…..

    US aid is curse.Recommend

  • mahmood
    May 20, 2011 - 12:17AM

    You think even proposing something for betterment is forbidden in this country. At least let the people discuss, if it is going to be implemented or not that is another area of debate.Recommend

  • Noor Nabi
    May 20, 2011 - 12:42AM

    From your lips, Ishrat Husain, to God’s ear. One only wishes that during your time as a top- notch economic planner under Shaukat Aziz you should have done something along these lines. The Pakistani military – already so incompetent and irresponsible – would never let go of the incoming dollars.Recommend

  • Anwar
    May 20, 2011 - 2:24AM

    Agree 100%. It is in the best interest of both nations. It should be done amicably and with no resentment.Recommend

  • Maulana Diesel
    May 20, 2011 - 5:31AM

    I completely agree —- we should reject US aid now. Pakistan has become addicted to aid. Time for the fat cat politicians to start paying their fair share of taxes. Recommend

  • Ba Ha
    May 20, 2011 - 5:41AM

    After the Abbottabad incident people have no interest in paying taxes to this govt.Recommend

  • Mohan Ram
    May 20, 2011 - 6:06AM

    True, the US aid is very small when comparing the total revenue. Consider this – Pakistan decides that the time has come to terminate their relationship with US who reciprocates with a trade embargo of Pakistani goods.and services and in turn applies pressure onits European allies and others to do the same. Will you then have the 40 billion. Since your rich landlords do nop taxes to the state but reap the harvest from the middle class and lower income tax revenue. In addition, the Armed Forces will requie their pound of flesh.

    The only partner you will have is ChinaDo for one minute think that China will absorb all tour consumer goods when they are sending their products to Pakistan and the trade balance is in their favour.How many billions will they provide to prop up pakistan..This will surely bankrupt the country. All you will have is the 100 odd nukes to threaten the worldRecommend

  • Ali
    May 20, 2011 - 7:19AM

    Excellent suggestion… My question is what impact will it have on multilateral support from IMF/World Bank/ADB where US is extremely influential !!Recommend

  • amarjamali
    May 20, 2011 - 8:49AM

    very good article.thanks sir informing us that we can live without aid.Recommend

  • Haider Hussain
    May 20, 2011 - 9:50AM

    Ishrat Sb,


    (1) Termination of US assistance doesn’t mean that we are ONLY forefeiting US assistance. USA excercises significant pressure on international donors, which may also decide to either tighten their ropes or suspend their assistance as well

    (2) US will NEVER say No to Pakistan no matter how hard we try to “break the bowl”. Because in that case, we may go to China, which is the last thing on earth US would want.Recommend

  • Adeel
    May 20, 2011 - 10:11AM

    Thank you sir for such a great write-up. Wish our rulers would actually stand up to Secretary Clinton and tell her THANK YOU!Recommend

  • Ashutosh
    May 20, 2011 - 10:12AM

    How will you manage cash flow in your economy friend?
    The better idea will be to suggest the ways to cut expenses, reduce subsidies and improve cash-inflows besides looking for new sources of fund.
    Once you feel that you can manage the economy probably then you can reduce the dependence on any aid.
    Your article is in line with the ‘good for nothing’ mulaahs and the grairat brigade of Pakistan. Whatever, but surely not a former governor of SBP.Recommend

  • Ghair Inqalabi
    May 20, 2011 - 11:41AM

    Neither country’s policies are as reflective of public opinion as a ‘democracy’ should like to boast…In Pakistan, aid money helps fill the enormous appetites of corrupt politicians, bureaucrats and generals, so there’s no way they would let it go, any more than they would ever support a truly progressive, all-encompassing and strict tax regime or a reduction in fiscal deficit and public borrowing that is playing havoc with the economy for years…On the other hand, in the US, aid is one of the channels through which public funds are routed to fulfill private agendas, so the posturing of their officials on this issue is hogwash for their own voters…Recommend

  • Feroz
    May 20, 2011 - 11:42AM

    I think what is more important but not discussed is that if Pakistan stands on its own feet without Aid the people will regain their self respect. That will be very essential if the people have to turn over a chapter and put the nation on a new course that brings Peace, Happiness and Prosperity.Recommend

  • Ashmad
    May 20, 2011 - 11:42AM

    With such a vast international economical experience and suggestion “In light of these widely different perceptions it may sound ironical to suggest that it would be better for both the US and Pakistan that the US bilateral official assistance is terminated sooner than later” is quite optimic in nature in line with Ch Minister Punjab initiative to refrain from grants in future. But what to do with “the integration of development, diplomacy and defence has muddled the development mission” and diplomacy with curruption rule the rules in these relations.Recommend

  • Chacha
    May 20, 2011 - 11:51AM

    US does massive spenjding in the region whether or not it gives the moeny to Pakistan to spend or does the spend itself. If US leaves, there will a significant drop in liquidity due to withdrawal of very deep pockets. The regional Af-pak economy will definitely have a negetive turn. Do not underestimate the decline of liquidity – it was one of the reasons of the 2008-09 economic crisisRecommend

  • Yusuf
    May 20, 2011 - 12:55PM

    I agree 100%. Actually, this one point alone deserves a long march – from I.I. Chundrigar Road to the Parliament.

    Dr. Ishrat, will you please step up and lead this march. I urge all sincere and objective citizens to support this long march for fiscal independence.Recommend

  • Sadaf
    May 20, 2011 - 3:04PM

    I agree completely! Stop the aid please!Recommend

  • SK
    May 20, 2011 - 3:30PM

    @Mohan Ram:
    Thanks for candid comments and even though you started with very genuine rationale but ended up with usual Indian’s tone which is quite unfortunate because that shows the grudge you carry.

    Anyway, yes US has that tendency and will apply embargoes and will also ask its EU allies to do the same and yes that will put lots of holes in Pakistan’s kitty but even if I take your point that this will be the only option, don’t you think if sanity has to prevail (as per Indian desires) and Pakistan has to stand up as genuine nation, should it not take first step towards that sobriety even if it proves dangerous in the short term? Before you respond to this, please decide whether your response will carry same grudge again or will act as part of useful dialog. Recommend

  • Shariq
    May 20, 2011 - 3:38PM

    It doesn’t matter whether you receive aid or not. The article states that we have enough money in our system to be not crippled if US aid stops. And that we have enough money to sustain our economic development. Well if thats the case, why are we in economic doldrums? How can we say that are we sufficient liquidity wise if you have to go to IMF to ask for loans to save the economy? So how can getting more money (US aid) be bad for our country. Dont blame US for the ills of our nation. Dont blame US aid for the ills of our leaders. With or without US aid, we’re still economically in doldrums. Blaming the US is the easy way out for all of us. And it seems to be in fashion these days. Recommend

  • random
    May 20, 2011 - 4:20PM

    @Mohan Ram

    I would most respectfully ask you to stop living in hypothetical situations….Recommend

  • OA
    May 20, 2011 - 4:23PM

    @faraz: Fact of the matter is US share in our exports is on a continous decline. We will have an impact from reduced exports to US, but that will not kill the economy for sure.Recommend

  • OA
    May 20, 2011 - 4:32PM

    @Ashutosh: Cash flow can be managed easily if there is some will. Open up trade routes with China, give them access via KKH to Gawadar… Revenue from transit trate upto tune of a 0.9-1.0bil. China will be interested since it will have reduced shipment costs, faster access to Middle east, and north Africa. There are many ways to manage it.
    We can save on expenses if we manage imports of fuel. Primarily Fuel for Thermal plants. Exploit the coal reserves in Thar, you will have 4000megs per annum from one block of coal for 20 odd years. Export Gold and copper products from Baluchistan… options are limitless if we open up our eyes.Recommend

  • OA
    May 20, 2011 - 4:34PM

    @Ali: I think leanders will be more worried if this happens. I mean if they know that the borrower will have troubles paying off they will make sure that you live to repay them. As per bankers good business practice they say “you work with your borrowers to ensure that they stay afloat else your money is gone”Recommend

  • Idris
    May 20, 2011 - 5:07PM

    Well, Maintain bilateral relationship with US but we don’t need to get into their HIP. I agree US aid should be discountinued and we should heal our wounds on our own. Talking about the trade thing, 21% of the total exports belongs to US and the emerging IT sector has 60% of its exports from American regionRecommend

  • May 20, 2011 - 5:24PM

    Let us not overlook one important factor. Whereas giving/receiving aid is a two way process, stopping aid is usually a unilateral action. America has done it before viz-a-viz Pakistan and reversed their decision due to geopolitical considerations. Whether the US will once again put Pakistan in quarantine is up to them. Will they again come back on their decision, is also up to them. Let us not think that stopping US aid is in any manner going to be a mutually agreed decision. Also remember, the one who pays calls the tune. Giving no money means having no influence!Recommend

  • May 20, 2011 - 6:12PM

    the only way to get rid off of loans and aid is to reduce enormous spending bu highy oficialls. Need to promote trade with US,EU and Asian countries as well. Thanks Dr. Sahib.Recommend

  • FactCheck
    May 20, 2011 - 9:36PM

    Just small distortion with Coalition Support $. It around 12 billion to 18 billion per annum. You took per month figure and distorted to prove your point.Recommend

  • observer
    May 20, 2011 - 9:40PM

    Even if it is the US that decides the quantum of aid to Pakistan.What is done with the aid is a Pakistani affair. If there is misuse and pilferage , the responsibility must rest with Pakistan. So for a change instead of saying an emotional NO to us aid, can we have NO only to military aid and continue to receive much needed aid for the civilian sector.Recommend

  • Ashutosh
    May 20, 2011 - 9:57PM

    Well said about cash flow friend. If you read my post carefully, I just mentioned that you have to plan and then slowly reduce your dependence on US aid. If you try to snap it … well, I don’t even want to imagine the situation …
    And why just access to China, you can provide access route to Afghanistan and a host of central Asian republic, which are basically land lock …
    Also you can promote Economic Zones along these routes promoting foreign investment in your country …
    But … you have to do away with the terror infrastructure your country had created … until you do away with them, the transit revenue and investment will both remain elusive …Recommend

  • mahmood
    May 20, 2011 - 10:48PM

    12 billion to 18 billion “per annum”. was this for Pakistan only???Recommend

  • Thinking
    May 20, 2011 - 11:40PM

    Oh no but if the aid stops, what will the ISI and Army do? They will actually have to find work and do something rather than being hailed by Pakistanis as saviours of Pakistan when they are really the most corrupt and awful group of people in the country and have ruined Pakistan since Independence.

    Oh no! Someone please think of the fate of poor Kayani and Pasha. Recommend

  • meekal ahmed
    May 21, 2011 - 12:30AM

    I for one am glad to hear that only 12-14% of US assitance goes to the budget. Imagine, say, 50% going to finance an ever-widening fiscal deficit!

    Project aid is slow disbursing. But if done right, it at least helps to build/re-new the nations capital stock.

    The real aid is on the military side. No one knows the precise figure since some, perhaps much of it, is off-the-books. A halt to that aid would not have non-trivial consequences. Recommend

  • Michelle
    May 21, 2011 - 4:08AM

    Well written article. I agree that’s a good idea for Pakistan to say “Thanks, but no thanks” to US aid. My opinion may not be representative of my country, but I can say that as an American, if this were to happen, I would have a lot of respect for Pakistan for standing up for itself and saying “We can make it on our own”.

    Besides, all of the US’s money comes from China anyway, so if Pakistan really needs aid, they might as well get it directly from China and cut out the middle man!Recommend

  • Shahid Latif
    May 21, 2011 - 10:05AM

    @Mohan Ram:
    Dr Ishrat did not advocate severance of all ties with USA. He has suggested that we should just decline the aid offer under Karry Luger Bill. As for as Coalition Support Fund is concerned, it is not aid, it is the compensation for various kinds of support provided by Pakistan. As for as remittance is concerned bulk of it comes from Middle East. Yes, trade bans would have greater impact, but there should be no occasion for that. Pakistan is not declaring war against USA or West. Pakistan is just addressing the usual American complaint that aid to Pakistan is a great tax burden for them.Recommend

  • Akber Saifi
    May 21, 2011 - 3:43PM

    Rather weak article, specially when the writer is such a learned person, nothing new or thoutht provoking, These numbers are on every TV channel and every critic of the loan/grant is churning them.
    A more interesting topic would be on why should USA continue with its aid and how will it effect Pakistan in both the short and lonf term, and who would like to take the USA place if a void is created(China??)Recommend

  • SS
    May 21, 2011 - 5:36PM

    Dr. Ishrat Hussain did very well in turning around State Bank in his time. Now he is doing very well in turning around IBA in a world class university via generating funds from its wide alumni network. This shows how things can turn around only if we start placing qualified and sincere people on key positions. Fully agree with him… this aid is creating more issues than solutions right now for both countries. Instead of aid we should ask US to provide trade access and continue providing the Fulbright scholarship program to our youth.Recommend

  • S Minhaj Zafer
    May 27, 2011 - 3:23PM

    In my opinion! The US aid to Pakistan can be best described by Blending few lines & adding a word from Urdu Poetry.

    { Dard barhta Gaya Jujoon Dawa ki }
    { Hae }
    { Meer kya saada hain Beemar Hue Jiske Sabab-
    { Usi Attar K Londay se Dawa lete hain }

    { Pain kept Increasing, when more Medicine were Taken }
    { Oh! }
    { Meer is so naive that, the person who made him sick-
    { He is taking Medicines, from his Son }Recommend

  • Saeed A. Rana
    May 30, 2011 - 8:55AM

    Ishrat: Congratulations on writing on a bold theme. I agree with you fully and wish some one could put sense in the minds of the ruling class in Pakistan. Unfortunately, they will not listen to it, bacause they are the only beneficiaries of aid – by the time aid flows to common people it is already dried up. During last visit of the Finance Minister to USA, I raised this issue with him when he addressed the World Bank staff on the current administration’s achievements. But, I was ignored saying I was emotional on the issue and not being an economist, I did not understand the prevailing macro-econmic environment.

    I firmly believe that Pakistan has to stand on its own feet bring dignity and self respect back to the people of Pakistan. Recommend

  • Dr Aamir Ali Choudhry
    May 30, 2011 - 3:01PM

    There are certain other dimensions to this issue. Many politicians, Government Officials, intelligentsia have vested interests in foreign aid. Politicians don’t want to take difficult or unpopular decisions.The government officials, at higher level, are generally in personal contact with foreign governments and press the politicians to take decisions from abroad. Similarly Intelligentsia, because of the requirement of their status of their profession has to take two opposite stances. The fact of the matter is that we should not wait for a proper time to discontinue the foreign aid. The Intelligentsia should prepare people. There should be no lies. Tell the people that if we dont get foreign aid, the expected price of petroleum and other commodities will be raised to this level and for this duration.and the prize is independenceRecommend

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