The reality of foreign assistance

By Zafar U. Ahmed
Published in DAWN on September 03, 2022

IN the modern age, no country can flourish in isolation. They have to trade: whether for fuel, technology, labour, etc. Pakistan wants to import much, but has limited competitive goods to sell in return — so it takes from international lenders or relies on aid to plug the gap. This is where donor agencies and multilateral lenders, such as the International Monetary Fund (IMF), the World Bank and the Asian Development Bank, step in. They provide grants or loans on cheaper terms than commercial sources, but usually with strings attached.

In a September 2018 article for The Guardian, writer, lecturer and broadcaster Kenan Malik, making note of former British PM Theresa May’s proclamation that, “in the post-Brexit world, Britain’s aid budget would be used to promote British trade and political interests”, had described foreign aid as a “fraud” perpetuated by rich countries to bribe or blackmail weaker economies.

In Pakistan, while a few donor agencies usually work through the government, most agencies also sponsor projects themselves (with funds routed through the Economic Affairs Division, etc). International NGOs bring in their own funds or implement their donors’ projects. To illustrate, let’s say there are some 17-20 major donor agencies present in the country and perhaps 20 significant INGOs. Each of these might have many projects ongoing, and some projects may involve numerous national and local NGOs.

Therefore, at a time, hundreds of projects/local partners can be working in diverse sectors under the guidance of these foreign agencies and INGOs. This has meant that there has not been a fully integrated development strategy or programme for the country over the last few decades. Such outsourcing of country priorities and development strategy and implementation goes against any recognised concept of management.

When projects end, experienced and trained project staff are let go. There is a knock-on effect on government capacity, as its regular staff has missed out on that experience and training in programme design, documentation and implementation oversight. Institutional learning and memory are lost.

A mature country does not require international agencies to coerce it towards prudent financial management.

Kenan Malik, in the same article mentioned earlier, had found multilateral funding, such as by institutions like the IMF, similarly determined by the interests of powerful countries. There is reason to agree.

The IMF’s decisions are not made under a one-country-one-vote system, but with votes that are distributed in proportion to a country’s funding contribution to the agency. Therefore, while Pakistan has 0.4 per cent votes, the US has 16.5pc votes, and its close allies Japan, Germany, UK and France have 6pc, 5pc, and 4pc, respectively. China has a 6pc voting share. Clearly, the West controls decision-making at the agency.

Interestingly, in fiscal year 2021, Pakistan paid back $600 million more to the IMF than it received from it, while in FY20 Pakistan received a net $2.1 billion. In total, the net of all multilateral and bilateral funds received in July-March of FY22 was only about $5bn.

For a country with an ‘official’ GDP of $380bn, these amounts seem tiny. It would seem quite a mystery as to why its successive governments have remained so deferential to rich countries.

The reason is that on the one hand, the country’s expenditures (and imports) far exceed its revenues (and exports). On the other hand, there is the fear of sanctions. The country’s exports, its overseas workers and acquisition of defence equipment are all highly vulnerable to sanctions. Our overseas workers are mostly unskilled, and relatively easily replaced from other poor countries. A little Middle East regime in a bad mood can do us much harm.

One of the reasons why the country has foregone cheap gas and electricity from Iran and now cheap oil from Russia is that our meagre exports are also easily replaceable.

Cotton manufactures, leather and rice still make up 70pc of our exports. Pakistan’s major export destinations are 21pc to the US, 11pc to China, 7pc to the UK, 5pc to Germany and so on. It relies on being granted a ‘favoured’ status by Western countries to export there. An annoyed West can get towels from elsewhere and also refuse visas to eager officials with many future expectations.

In the past, there have been instances where delivery of military equipment for which payment had already been made was delayed over a perceived slight.

A mature country does not require international agencies to coerce it towards prudent financial management. To be truly sovereign, Pakistan must balance its expenditures with its revenues.

IMF conditionalities essentially require a country to spend within its means. The recipient country can decide itself where to make spending cuts: for instance, whether to cut services for the poor or whether to rein in the rich and powerful. The lender’s priority is to recover its loans — it does not take responsibility for any adverse impact on the country’s citizens.

Pakistan needs to make itself resilient to external pressure. Firstly, the more trained and skilled our overseas workers are, the higher paid and less easily replaced they will be.

Second, export destinations and export goods must be diversified. Exports should be won in open competition, not by relying on receiving favoured nation status.

Thirdly, self-reliance in producing defence equipment ought to be a goal. This will be possible with a defence strategy as appropriate for a poor country, which is necessarily different from the strategies of the great powers, where many of our military officials receive their training. Defence expenditures can also be financed by manufacturing and exporting military equipment, but under civilian financial management.

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