Is Foreign Aid Good or Bad For Pakistan?

[Riaz Haq]

This year's Nobel Prize winning economist Angus Deaton of Princeton University considers foreign aid to developing nations a curse like the oft-mentioned resource curse of energy and mineral-rich nations of Africa and the Middle East.

Deaton has studied poverty in India and Africa and spent many decades working at the World Bank whose charter it is to fight poverty. He argues that, by trying to help poor people in developing countries, the rich world may actually be corrupting those nations' governments and slowing their growth and hurting the poor in the process. Prof William Easterly of New York University has published a paper titled "Can Foreign Aid Buy Growth?" that supports the view that increase in foreign aid has reduced economic growth in Africa.

Source: William Easterly of NYU

In addition to being recipients of foreign aid, most African countries are also rich in resources ranging from oil and gas to diamonds and metals. Yet, their people are among the poorest in the world.  Why is it? The biggest reason appears to be their corrupt leaders who pocket most of the proceeds from mining. They also siphon off a big chuck of foreign aid left after paying the expensive western consultants employed by aid agencies.

So where does Pakistan stand in this mix? Charts published by Washington Post show that Pakistan, in spite of not being a major exporter of minerals, enjoyed an average economic growth rate of about 5% from 1970 to 2008.  This is about the same as India's but higher than Brazil's and Turkey's GDP growth rates. The economic growth rates for China and Korea are much higher than Pakistan's in this period.

Foreign aid to Pakistan has also been more effective in promoting economic growth than much of Africa. Even Dambisa Moyo, author of "Dead Aid" and a critic of western aid, acknowledges that the US aid for "the Green Revolution in India (and Pakistan) played vital roles in economic (re)construction" of the South Asian nations in 1960s and 1970s. The South Asian subcontinent could have faced starvation without this aid.

One of the key reasons for the success of Green Revolution was the ability of the human capital in India and Pakistan to absorb the technological knowhow that it brought along with money. Ms. Moyo offers the same reason for the success of Marshall Plan aid in Europe.

Foreign Aid to Pakistan as Percent of GDP Source: World Bank

US aid to Pakistan after the Green Revolution has been much smaller as percentage of the nation's GDP and much less effective.  Total foreign aid to Pakistan has dramatically declined from a peak of over10% of GDP to less than 2% of GDP now, too little to impact economic growth even if it is utilized better.

The expected size and speed of the Chinese FDI of $46 billion in energy and infrastructure is much more likely to spur Pakistan's economic growth than the western aid has been in the recent past. It will put Pakistan on a path to rely much more on investment and trade than on aid or debt for its foreign exchange earnings.

Related Links:

Haq's Musings

Aid, Investment, Trade and Remittances for Pakistan

Declining Investment Hurting Pakistan's Economic Growth

Pak-China Industrial Corridor to Boost Investment and Trade

Pak Army Completes Over Half of CPEC Western Corridor

Pakistan Economic History 1947-2010

Top Global Fund Investor Bullish on Pakistan

Culture of Corruption in Pakistan

[Riaz Haq]

#EU to provide €653m to #Pakistan for uplift projects in rural areas to cut #poverty. http://www.dailytimes.com.pk/business/15-Dec-2015/eu-to-provide-653... …

European Union will provide assistance of six hundred and fifty three million euros to Pakistan for rural development and reduction of poverty.

A memorandum of understanding for the EU’s Multi Indicative Programme (2014-2020) with a commitment of €653 million was signed between the government of Pakistan and European Union. The signing of the agreement was witnessed by Minister for Finance and Economic Affairs Senator Ishaq Dar and ambassadors and representatives from EU member states.

The minister on this occasion said that the government appreciates the development assistance being given to Pakistan by EU. He appreciated the fact that the new MIP was almost double the amount of the previous programme. He said that building a stable, democratic and economically vibrant Pakistan was the aim of the government.

He said that the government was committed to achieving this objective and called upon the EU and its member countries to support Pakistan in this regard.

EU Ambassador Jean-Francois Cautain said that the €653 million EU multiannual indicative programme for Pakistan set out the EU’s development strategic objectives in support of a stable and democratic Pakistan, in line with the EU-Pakistan five years engagement plan 2012-2017, which framed the relationship between the two sides.

[Riaz Haq]

#Aid in reverse: Net flow of $2 trillion from poor to rich nations recorded in 2012. #Trade #Investment #Interest

https://www.theguardian.com/global-development-professionals-networ...

...for every $1 of aid that developing countries receive, they lose $24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development. The GFI report finds that increasingly large net outflows have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.


In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other words, developing countries sent $2tn more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to an eye-popping total of $16.3tn – that’s how much money has been drained out of the global south over the past few decades. To get a sense for the scale of this, $16.3tn is roughly the GDP of the United States

What this means is that the usual development narrative has it backwards. Aid is effectively flowing in reverse. Rich countries aren’t developing poor countries; poor countries are developing rich ones.

What do these large outflows consist of? Well, some of it is payments on debt. Developing countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London, on a scale that dwarfs the aid that they received during the same period. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home. Think of all the profits that BP extracts from Nigeria’s oil reserves, for example, or that Anglo-American pulls out of South Africa’s gold mines.

But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. GFI calculates that developing countries have lost a total of $13.4tn through unrecorded capital flight since 1980.

Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions, a practice known as “trade misinvoicing”. Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade misinvoicing, which outstripped aid receipts that year by a factor of five.

Multinational companies also steal money from developing countries through “same-invoice faking”, shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides. For example, a subsidiary in Nigeria might dodge local taxes by shifting money to a related subsidiary in the British Virgin Islands, where the tax rate is effectively zero and where stolen funds can’t be traced.

GFI doesn’t include same-invoice faking in its headline figures because it is very difficult to detect, but they estimate that it amounts to another $700bn per year. And these figures only cover theft through trade in goods. If we add theft through trade in services to the mix, it brings total net resource outflows to about $3tn per year.

That’s 24 times more than the aid budget. In other words, for every $1 of aid that developing countries receive, they lose $24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development. The GFI report finds that increasingly large net outflows have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.

[Riaz Haq]

Japanese Envoy to Pakistan Takashi Kurai on Saturday said his country is Pakistan’s third largest donor.

He was speaking at the 65th anniversary of diplomatic relations between Japan-Pakistan. The event was organised by the English Speaking Union of Pakistan.

Kurai said that in the 90s Japan was the biggest donor of Pakistan. He said Japanese companies want a more stable environment in Pakistan for more investment. He said that the Prime Ministers of both countries had not visited each other’s countries for a long time. He hoped that these visits would take place in the near future. He said Japan supported Pakistan in healthcare, education, infrastructure development and other fields.

The envoy also said that both countries established diplomatic relations in 1952 and since then they have enjoyed excellent relations.

He said Japan is the only country that faced the horrors and destruction of the atomic bombs during WW2, but the Japanese showed resilience and patience and made the country’s economy stable.

Khalid Malik, president of the English Speaking Union of Pakistan and secretary general Muzafar Qureshi thanked the Japanese ambassador for attending the ceremony. They also praised his efforts for further boosting bilateral relations.

http://dailytimes.com.pk/pakistan/21-Jan-17/japan-is-pakistans-thir...

[Riaz Haq]

$241m USAID schemes underway in Sindh, says Murad

https://reliefweb.int/report/pakistan/241m-usaid-schemes-underway-s...

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It may be noted that since 2011, USAID in partnership with the provincial government has been implementing the SBEP for $165 million, including $10 million the Sindh government share. Through this partnership the SBEP improves the quality and access to education for children in Sindh by increasing and sustaining student enrollment at the primary, middle, and secondary school levels. The program is being implemented in seven districts of Northern Sindh and five towns of Karachi.

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He elaborated that major Components of SBEP include building of 106 new schools with1400 classrooms in flood-affected and other areas. Improvement of reading and numeracy skills of 750,000 children over five years, engaging up to 400 communities in the construction, operation and maintenance of schools over five years and establish effective public/private partnerships to manage these schools and ensure enrollment of at least 100,000 girls.

Syed Murad Ali Shah said that major targets of the programme are to increase knowledge and professional skills of 25,000 primary school teachers, particularly in Reading and Mathematics. “It also aimed at providing non-formal educational opportunities to 100,000 out-of-school children to enable 50,000 to transit to formal schools,” he said and added there is a target to provide capacity building opportunities to 500 government officials to implement the Sindh Government Education Reforms, increase availability of adequate health care facilities for children and train 500 government district offices/supervisors, teachers, head-teachers in developing, implementing and monitoring of Early Grade Reading Assessment (EGRA) and Early Grade Maths Assessment (EGMA).

Chairman P&D Mohammad Waseem said that so far, there have been considerable milestones achieved by SBEP that include site assessment of 875 schools completed. This assessment is helping to logically select schools for construction. Till now 33 government schools are under construction at Khairpur, Sukkur and Larkana districts. 37 SBEP targeted schools are notified as campus schools with 76 schools being consolidated and merged under government consolidation policy.

He added that the Private land owners have donated their personal land in Larkana, Sukkur and Khairpur to School Education Department for reconstruction of schools. 238 early grade teachers (Master Trainers) are trained in Reading and Mathematics Teaching Skills to further train 3,000 teachers and a comprehensive study is done by SRP to develop supplementary reading material to create a culture of reading within target schools.

Mr Wsim said that partnership with Rotary International established to equip Science and Computer Labs in hub schools and to provide reading and mathematics materials to 1,100 school libraries.

Municipal Services delivery Programme (MSDP): This programme has been launched with USAID grant of $66 million in which provincial government’s share stands at Rs926.55 million. The programme is aimed at improving and upgrading municipal services/infrastructure in six cities of the Norther Sindh. They are Jacobabad, Qambar, Shahdadkot, KN Shah, Mehar and Johi. Presently, the programme is in progress in Jacobabad and after its successful completion it would be started in other cities.

USAID has invested $10 million in establishing JIMS and expanded access to quality health care services for the residents of Jacobabad- Sindh and Balochistan. JIMS is a 133 beds hospital which offers outpatient treatment, emergency and diagnostic facilities as well as specialized services in mother and childhood center, intensive care unit and surgical facilities.

[Riaz Haq]

William K. Makaneole, the US Consul-General at Lahore, stated this in an exclusive panel interview with 'The News' and Jang, conducted through email questions and answers.

https://www.thenews.com.pk/print/923951-overline-fiscal-years-2018-...


He said the US partners with six universities on American Spaces called "Lincoln Corners" in Punjab; several exchange programs take Pakistanis to the US who contribute to Pakistan's development with their newly acquired perspective and experience after joining Pakistan-US Alumni Network (PUAN); Pakistan hosts the world's largest Fulbright Program; the US has collaborated on a range of projects in agriculture, livestock, business development/entrepreneurship, education, health, governance, and energy sectors; vocational training has enabled entrepreneurship opportunities for 10,000 youths in four districts ofSouth Punjab; the US believes that all foreign assistance and investment to Pakistan should apply the highest international standards of openness, inclusivity, transparency, and governance; the US remains one of the largest providers of civilian assistance to Pakistan.

Following are the details of the interview: —

The News/Jang: What is the current scale of cultural cooperation with Punjab, including between governments, non-governmental organizations, and the private sector.?

US CG: Our Public Affairs Section at the Consulate implements a wide range of cultural and educational programs. We work on projects to conserve cultural heritage, sites such as the restoration of the Wazir Khan Mosque and surrounding areas, and we promote economic opportunities through our exchange programs and support for women entrepreneurs. We empower the youth through sports camps and English language training, and we partner with community colleges in Punjab to collaborate with American counterparts to strengthen higher education.

We partner with six universities on American Spaces in Punjab: Lahore, Faisalabad, Sargodha, Multan, and Vehari. At these American Spaces, called "Lincoln Corners," you can find information about the United States, English language learning opportunities, US 'study abroad' advice, cultural programs, and other activities. Visitors gain free access to Wi-Fi and current and reliable information about the US through books, magazines, videos, internet databases, and programs for the public. Visitors can also access cutting-edge technology like 3D printers, virtual reality headsets, and other Makerspace technology.

We collaborate on several exchange programs to bring Pakistanis to the United States. When the exchange program participants return home, we encourage them to join our Pakistan-US Alumni Network (PUAN), through which they can contribute to the development of Pakistan with their newly acquired perspective and experience. There are over 10,000 alumni across Punjab province - a larger network than in many countries around the world. PUAN selects its own leadership every year through a democratic process and acts as a liaison between the US Mission and the community. The US government contributes seed funding for the alumni to take on projects that benefit their communities.

Lastly, through EducationUSA, we provide free advising to prospective students in Pakistan seeking to study in the United States.