Foreign aid an impediment to growth

VIAM Usman Ghani
SOURCEDaily Times
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The American government prior to the visit of its Secretary of State Mike Pompeo to Pakistan has cut down all its Coalition Support Fund (CSF), which America has been bestowing on Pakistan to combat terrorism. Following this event, many people are rearing the notion that the suspension of this aid would further push Pakistan down the economic spiral.

Firstly these people need to understand that CSF is not ‘aid’ given by the US. CSF is the money spent by Pakistan in combating terrorism, which the US has to reimburse to Pakistan. Secondly in the event that the US does suspend other aid packages to Pakistan, there is also no need to grieve, as foreign aid is an impediment to economic progress.

According to a report by the Washington Post in October 2016, the US spends almost $42 billion in the form of security assistance and economic assistance to other countries. The top ten countries it provides aid to are; Afghanistan, Israel, Egypt, Iraq, Jordan, Pakistan, Kenya, Nigeria, Tanzania and Ethiopia. Afghanistan receives the most aid, amounting to $4.7 billion, while Pakistan is ranked as the sixth highest aid receiving country, amounting to $742 million, out of which $320 million was allocated for countering terrorist challenges and providing regional security, while $422 million is given for economic development.


As soon as the Trump administration came to power, things went sour for Pakistan. Trump has been accusing Pakistan of harbouring terrorists and betraying the US. Since the War on Terror, the US has asked Pakistan to be a frontline partner in eliminating terrorism. Reciprocally Pakistan has been given aid to develop its economy. In a tweet in January 2018, Trump claimed that $33billion in assistance have been given to Pakistan till now. The money which is more than half of the investment on CPEC, should surely have helped Pakistan prosper by now. Did this prolific amount of aid led Pakistan to the path of progress? What about other countries, whose total aid amounts to $42 billion every year, have they magically resolved all their issues?

Also Read: IMF or no IMF: which way forward?

The answer is nay! The reason behind this is; that foreign aid is questionable in the development of economics; moreover it is futile and has wreaked havoc over the years.

The US gives aid based on its ambition to enhance its own domain of influence and personal interests, by making countries import US goods. For instance, 22 perecent of Pakistani imports arrive from the US

Pakistan is one of the major beneficiaries of US aid. However, experience suggests that this aid has not improved its overall economic status. Health and education are the basic objectives of a nation, however, the current state of both objectives is crippled in Pakistan irrespective of the prolific aid that Pakistan used to accept. Pouring billions of dollars in the Pakistani economy throughout the Musharraf and Zia administration produced short-term positive effects, however did nothing in the long run. These barely visible positive trends in the economy faded when the flood of dollars began to diminish. Now when the reins of government are in Imran Khan’s hands, the country is still rotting in economic degradation despite consuming $33 billion in the form of foreign aid.

Pakistan is not the only case, where foreign aid has contributed to the loss of efficiency. Afghanistan, one of the main receivers of aid has been suffering conditions worse than Pakistan.

The Afghanistan Living Conditions Survey (ALCS), a shared study by the European Union and Afghanistan’s Central Statistics Organization, depicted that national poverty rates have been rising to 55 percent in 2016-17 from 38 percent in 2011-12. “The high poverty rates represent the combined effect of stagnating economic growth, increasing demographic pressures, and a deteriorating security situation,” said Shubham Chaudhuri, the World Bank Director for Afghanistan. Despite the inflow of such a hefty sum, Afghanistan is reeling under the vicious cycle of poverty and economic recession. Pakistan, Afghanistan, and Nigeria are the only countries in the world where the polio disease still persists, and these countries are still fighting for polio eradication.

In Nigeria, 61 percent of its population is rotting in absolute poverty despite getting $600 million every year. Many countries such as Ethiopia, Kenya, Iraq, and Tanzania face the same issue. The Economic graph of these countries always manifests recession, while diseases and poverty pervades these countries without an iota of improvement in their economy, health, and education.

Also Read: Pakistan uses Chinese trade finance to repay foreign loans

All the circumstances mentioned above bring us to the conclusion that aid seeking countries are stuck in the worst economic situations. The US only plays with these countries under the semblance of economic and military support. The US gives aid to countries with an ambition to enhance its own domain of influence and personal interests by making these countries import US goods. For instance, 22 percent of Pakistan imports arrive from the US.

Foreign aid increases dependency on the donor country and fosters corruption, all the while encouraging currency overvaluation. It also deters countries from procuring advantages from the global economy. The main reason that makes foreign aid inept is corruption since the amount of aid goes into the hands of the corrupt administration, who has nothing to do with the prosperity of the Nation. Owing to corruption, money that is meant for economic prosperity and human welfare is not invested.

Furthermore, foreign aid lowers the morale of a nation as it begets a sense of inferiority. The dependency on foreign aid doesn’t induce the government to work for the country’s progress. It impedes the efficiency of government to run economic cycles as the government is fully cognizant of the fact that every year it will get a specific amount of money to run the country. Thus governments don’t formulate policies around tax collection, corruption annihilation and the industrialization of the country. Foreign aid is an anathema to innovation and production in any country because it makes political leadership dormant.

Franklin Roosevelt the president of the US during the Great Depression, crafted The New Deal, despite relying on foreign aid. It was the outcome of the New Deal and the World War II that the US fought with the Great Depression and emerged as a world power. China, the economic giant, has achieved its success not on the basis of foreign aid, but it harnessed its population, resources and condemned the course of corruption. The world guarantees success only to those states, who rely on themselves instead of foreign aid.

Pakistan with a population of 220 million, the sheer richness of its land and plethora of natural resources can turn its course on its own easily. Time is ripe for PM Imran Khan to convey its message to the US and the rest of world, that Pakistan can reach great economic heights without relying on US aid.

The writer is an electrical engineer who is also a CSS aspirant. He Tweet @iamusmanghani

(This news/article originally appeared in Daily Times on September 7th, 2018)

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