Should Pakistan Receive More Foreign Aid?

By Anjum Altaf

As Chairman of the US Foreign Relations Committee, Senator Joe Biden has been a strong advocate of increased developmental assistance for Pakistan. Therefore, if he becomes the Vice President in November, the prospects of a significant jump in the quantum of American aid to Pakistan would grow considerably. Would this be a good idea?

The question is good idea for whom? Who would be the beneficiary of this assistance?

Any such increase would clearly ignore the evidence that much past aid to Pakistan has been wasted because there are no tangible development outcomes to be seen. This is not to say that there have no beneficiaries of the transfer of funds. An investigative report would provide fascinating stories about where all the money has gone.

Between 1950 and 2000, donor assistance to Pakistan has been of the order of $60 billion. Yet, the country’s social indicators are languishing at the bottom end of the list of countries. The health system is sick; the infant mortality rate per 1000 live births in 2007 was 80 compared to 12 in Sri Lanka. Education is in shambles with half the population still illiterate, an increasing number having to turn to madrassas, and the rest receiving indoctrination instead of an education. No wonder, religious and social intolerance is rising rapidly.

Hopes that new aid would be used better are misplaced without explaining what has changed that would lead to more effective utilization. The poor use is often blamed on rampant corruption and weak governance. These have deteriorated over the years, not improved. Even otherwise, these are lame explanations that reflect poorly on the donors. These constraints are well-known before the assistance is programmed and should be built into the design of aid-assisted projects. The fact that they are not suggests that either the donors are really naïve or they have a hidden agenda. Unfortunately, the average citizen in Pakistan has by now become convinced of the latter.

The remedy is not to stop all development assistance to Pakistan but to design it in a way that good outcomes become possible. The Pakistani situation seems immensely complex from afar causing well-intentioned people to think they could never understand its workings. There is, however, a simple way to understand why outcomes of development assistance are so poor in Pakistan. A useful analogy is with the subprime mortgage crisis in the US. It is possible at times for the interests of various players to be aligned in such a way that no one has an incentive to call a halt to the madness at the same time as the regulatory mechanism fails to do its job. Unlike the US, public response mechanisms are so weak in Pakistan that even failures of huge magnitude go unquestioned; people just adapt to their fate and no one acts on their behalf to determine what happened to the funds received in the name of the people of Pakistan.

Let us look at the set of incentives in place. US governments are interested in moving money to Pakistan when they believe their strategic interests are at stake, Pakistani governments are more than happy to receive it, the US Agency for International Development is rewarded for disbursing funds quickly through the pipeline, and private US contractors have an easy source of income. Pakistani NGOs that are supposed to watch out for the citizens are unable to resist the lure of big money; most of them end up as subcontractors on the major projects. Despite the lack of results on the ground, not one of these players has shown an interest in stopping to take a second look. All of them are beneficiaries and evaluators at the same time. No wonder they do not wish to rock the boat or alter the status quo.

The only parties who gain nothing from this cycling of money are unable to exert any meaningful influence on the process or evaluate it in any way. The US taxpayer is not well served by the Government Accountability Office whose primary concern seems only to ensure that the disbursement of funds follows proper procedures. And the Pakistani citizen is not consulted at all; it would be hard to find one who knows what is being done in his or her name. There is not even an easily understood term for Millennium Development Goals in the local languages.

For aid to become effective a number of design and process changes are needed. First, nationwide programs need to be replaced by geographically delimited projects whose deliverables are clearly specified. Second, different donors should be placed in a competitive framework executing similar projects in different locations. Third, beneficiary populations have to be involved and represented by citizens’ committees that are provided information about budgets and key milestones. Fourth, media representatives need to become engaged to keep a scorecard and to regularly disseminate information about the progress so that corrective actions can be taken in time.

Some of these elements, consciously or by happenstance, were part of the design of the immensely successful Indian Institutes of Technology that have contributed so much talent to Silicon Valley and are now fuelling the software boom in India. In the 1950s different donors were assigned the tasks of funding, implementing and nurturing each of the various IITs and the resultant competition for prestige contributed greatly to the success of the outcomes.

Intelligent design and credible accountability are the keys to effective utilization of aid to Pakistan. Without these US taxpayer money would continue to be poured down a dark and bottomless hole furthering even more corruption, cynicism and hostility in Pakistan.

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3 Responses to “Should Pakistan Receive More Foreign Aid?”

  1. William Harvey Says:

    The problem with past aid is that it has gone exclusively to the military. The US has created the impression among Pakistanis that it is only interested in Pakistan because of its own misguided assessment of its own strategic interests. I would argue that the long-term interests of Pakistan’s people are more in line with American interests than forging alliances of convenience with Zia, Musharraf, or Zardari. More cultural exchanges (such as Cultures in Harmony’s tour in August) would cement the bonds between individual Pakistanis and Americans. Pakistani NGOs such as The Citizens Foundation should be the direct recipient of American dollars; why involve the Pakistani government at all?

    • SouthAsian Says:

      William: It is not the case that past aid has gone exclusively to the military. If you read the abstract of this paper by William Easterly (now a professor of economics at NYU) you will see that till 2001 Pakistan had received $60 billion in development assistance most of it for health and education where there is nothing to show for it – the paper is accurately titled The Political Economy of Growth Without Development: A Case Study of Pakistan.

      The paper discusses a huge Social Action Program. You can read some vignettes about it here in an essay titled Pakistan Picaresque.

      There were many cultural exchanges till the 1970s – Duke Ellington’s band visited among others – but they can cement ties only if the foundation is conducive. Cultural exchanges cannot substitute for incompatible politics. For example, the fact that both President Obama and Secretary Clinton like Pakistani food cannot make up for the perception that US policy is supportive of oppressive rulers.

      NGOs are doing good work but they cannot scale up to the magnitude of the problems facing Pakistan – the mismatch is explained in this post Are NGOs Relevant?

  2. SouthAsian Says:

    Do read this report on US aid to Afghanistan:

    “KABUL, Afghanistan — With billions of dollars in American aid increasingly flowing straight into Afghan government coffers, the United States hired two global auditing firms three years ago to determine whether Afghanistan could be trusted to safeguard the money.

    The findings were so dire that American officials fought to keep them private. But the money has continued to flow, despite warnings from the auditors that none of the 16 Afghan ministries could be counted on to keep the funds from being stolen or wasted.

    “The problems unearthed by the auditors are detailed in a report to be published Thursday by the Special Inspector General for Afghanistan Reconstruction, an American government watchdog. The findings raise new questions about the efficacy and wisdom of giving huge amounts of aid directly to a government known for corruption.

    http://www.nytimes.com/2014/01/30/world/asia/report-says-afghanistan-cant-be-trusted-to-prevent-misuse-of-us-aid.html?hp&_r=0

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