At the start of my professional career, about a decade ago, I was hired to work in a government department as a consultant under a ‘capacity building’ program. The program was sponsored by a foreign aid agency, with the aim of introducing technically qualified people in the department on a permanent basis. That, of course, never happened since bureaucracy got what it wanted: aid money that was used up to confer benefits upon themselves. Consider, for example, the post of the project director which was so lucrative (project director posts, run on aid money, pay more than double salary complemented by other perks) that a reference from the finance minister or the prime minister was necessary to snatch it from others.
In short, things remained the same and no capacity building ever took place. But what the aid money did induce was a rat race among bureaucrats and political cronies to secure a chunk of the monetary free ride. Few foreigners were also hired by the aid agency to look after the project. They would visit once or twice a year, get a short briefing and then take the first flight out of Pakistan (ticket financed by aid money). A bureaucrat was sent to Harvard for a course, three months before retirement, in lieu of this ‘capacity building’. This, in brief, is the crux of how foreign aid was consumed in this particular project. More than a decade of professional experience has taught me that similar is the case in most donor funded projects, with only a few exceptions.
Donor nations like US and Britain put aside a substantial part of their taxpayer money every year with the intention of helping out poor countries like Pakistan in dealing with myriad of problems like poverty and governance. For example, the UK’s Department for International Development (DfID) website states that it is “targeting British international development policy on economic growth and wealth creation [in poor countries].” Yet, serious debate has now ensued among economist community within donor nations about the effectiveness of aid, with commentators like William Easterly and Marian Tupy advocating doing away with aid all together since there is no proof that aid has helped the poor countries.
The antecedents of foreign aid as a panacea can be traced to development theories of the 1950s and ‘60s, which concluded that the plight of poor countries owes to lack of domestic savings, which in turn meant lower investment. This gap between insufficient savings and required investment is what kept poor countries backward. And then came that eureka moment, whereby foreign aid was anointed as the magic wand that would set things right. Thus the world saw the birth of modern aid bureaucracy, whereby armies of foreigners would descend upon the poor countries to offer their expertise on development and tell them where the aid money should be spent.
Those theories, to say the least, are out-dated now. Aside from theoretical flaws (for example, they never took into account money management issues that could ensure squeezing more out a unit of money), overall evidence also stand in contrast to their implications. Consider, for example, the case of Ghana and South Korea. Since 1960, Ghana has received substantially more aid per capita compared to South Korea. But their development trajectories reveal a damning story. In 1960, South Korea and Ghana’s per capita income was very close ($1,102 and $1,050 respectively). In 2015, while South Korea’s had crossed $25,000, Ghana was stuck at $1,696! Similar cases can be found world over.
What can we conclude from this? Is foreign aid good, bad or neutral? I am not the only one that is asking this question. Within the donor nations, there is serious debate on the effectiveness of aid and its negative outcomes. Within Pakistan, the critics of the aid bureaucracy and industry are few (like the very vocal Dr Nadeemul Haque), understandably so because they offer some of the most lucrative jobs in a country where good paying jobs (and even normal jobs) are hard to come by. Nobody, especially government and the think tanks, wants to annoy them since monetary free rides could be hard to come by.
But we do need to ask questions. Consider, for example, the program that has received the most aid money in the last decade, the BISP. A sizeable chunk of the Rs600 billion spent on ‘poverty reduction’ and ‘social safety net’ (SSN) comes from donor aid. While not a single family has ever been reported to escape poverty, and the effects of hand outs on social safety questionable, what we do know is that the program has more than 2,000 employees now permanently on taxpayer dole, it has sizeable overhead costs, and that the program alone has spawned a small level poverty-centred industry that feeds on this government largesse (this is besides the rampant corruption and misuse of money that I pointed out in an earlier article about the program). Even of the foreign aid were to stop, Pakistani taxpayers would have to foot the massive bill for the aid bureaucracy created in the name of SSN and poverty reduction.
Foreign aid’s main implication for Pakistan, historically speaking, has been to create fiscal space for additional expenditures. But facts speak for themselves. This additional fiscal space has, over time, been used in a manner that it only increased additional burden in the form of current, non-development expenditures rather than productive expenditures. The ratio of non-development to development expenses, both at federal and provincial level, stands roughly at 80:20. It would thus seem that whatever additional fiscal space is created by donor money, it has (indirectly) incentivised non-development overheads that contribute little to alleviating pressing socio economic concerns, not to mention loads of debt we have been racking up despite all the foreign aid.
This is not to say that donor facilitated and financed work is completely useless. Some of the lesser known donors, for example, support work that caters to the need for intellectual debate on issues of importance. Moreover, the research financed by them brings to light those aspects that may not be found in the reports of bigger donors. In February this year, for example, I attended an impressive presentation which showcased the extensive research concerning socio-economic indicators of every single district in Pakistan. But their work tends to pale in comparison to the trite work of big time donors who support their own aid bureaucracies and finance projects that have little productive outcome.
Let me conclude by suggesting the obvious: Pakistan’s economic salvation is not going to come through donor money, but through a home-grown reforms agenda, an agenda that weans Pakistan off of its debilitating dependence upon foreign aid. Since we’ve now outsourced economic management to a prominent donor (IMF), this is unlikely to happen anytime soon.
The writer is an economist
In short, things remained the same and no capacity building ever took place. But what the aid money did induce was a rat race among bureaucrats and political cronies to secure a chunk of the monetary free ride. Few foreigners were also hired by the aid agency to look after the project. They would visit once or twice a year, get a short briefing and then take the first flight out of Pakistan (ticket financed by aid money). A bureaucrat was sent to Harvard for a course, three months before retirement, in lieu of this ‘capacity building’. This, in brief, is the crux of how foreign aid was consumed in this particular project. More than a decade of professional experience has taught me that similar is the case in most donor funded projects, with only a few exceptions.
Donor nations like US and Britain put aside a substantial part of their taxpayer money every year with the intention of helping out poor countries like Pakistan in dealing with myriad of problems like poverty and governance. For example, the UK’s Department for International Development (DfID) website states that it is “targeting British international development policy on economic growth and wealth creation [in poor countries].” Yet, serious debate has now ensued among economist community within donor nations about the effectiveness of aid, with commentators like William Easterly and Marian Tupy advocating doing away with aid all together since there is no proof that aid has helped the poor countries.
Whatever additional fiscal space is created by donor money, it has indirectly incentivised non-development overheads that contribute little to alleviating pressing socio economic concerns, not to mention loads of debt we have been racking up
The antecedents of foreign aid as a panacea can be traced to development theories of the 1950s and ‘60s, which concluded that the plight of poor countries owes to lack of domestic savings, which in turn meant lower investment. This gap between insufficient savings and required investment is what kept poor countries backward. And then came that eureka moment, whereby foreign aid was anointed as the magic wand that would set things right. Thus the world saw the birth of modern aid bureaucracy, whereby armies of foreigners would descend upon the poor countries to offer their expertise on development and tell them where the aid money should be spent.
Those theories, to say the least, are out-dated now. Aside from theoretical flaws (for example, they never took into account money management issues that could ensure squeezing more out a unit of money), overall evidence also stand in contrast to their implications. Consider, for example, the case of Ghana and South Korea. Since 1960, Ghana has received substantially more aid per capita compared to South Korea. But their development trajectories reveal a damning story. In 1960, South Korea and Ghana’s per capita income was very close ($1,102 and $1,050 respectively). In 2015, while South Korea’s had crossed $25,000, Ghana was stuck at $1,696! Similar cases can be found world over.
What can we conclude from this? Is foreign aid good, bad or neutral? I am not the only one that is asking this question. Within the donor nations, there is serious debate on the effectiveness of aid and its negative outcomes. Within Pakistan, the critics of the aid bureaucracy and industry are few (like the very vocal Dr Nadeemul Haque), understandably so because they offer some of the most lucrative jobs in a country where good paying jobs (and even normal jobs) are hard to come by. Nobody, especially government and the think tanks, wants to annoy them since monetary free rides could be hard to come by.
But we do need to ask questions. Consider, for example, the program that has received the most aid money in the last decade, the BISP. A sizeable chunk of the Rs600 billion spent on ‘poverty reduction’ and ‘social safety net’ (SSN) comes from donor aid. While not a single family has ever been reported to escape poverty, and the effects of hand outs on social safety questionable, what we do know is that the program has more than 2,000 employees now permanently on taxpayer dole, it has sizeable overhead costs, and that the program alone has spawned a small level poverty-centred industry that feeds on this government largesse (this is besides the rampant corruption and misuse of money that I pointed out in an earlier article about the program). Even of the foreign aid were to stop, Pakistani taxpayers would have to foot the massive bill for the aid bureaucracy created in the name of SSN and poverty reduction.
Foreign aid’s main implication for Pakistan, historically speaking, has been to create fiscal space for additional expenditures. But facts speak for themselves. This additional fiscal space has, over time, been used in a manner that it only increased additional burden in the form of current, non-development expenditures rather than productive expenditures. The ratio of non-development to development expenses, both at federal and provincial level, stands roughly at 80:20. It would thus seem that whatever additional fiscal space is created by donor money, it has (indirectly) incentivised non-development overheads that contribute little to alleviating pressing socio economic concerns, not to mention loads of debt we have been racking up despite all the foreign aid.
This is not to say that donor facilitated and financed work is completely useless. Some of the lesser known donors, for example, support work that caters to the need for intellectual debate on issues of importance. Moreover, the research financed by them brings to light those aspects that may not be found in the reports of bigger donors. In February this year, for example, I attended an impressive presentation which showcased the extensive research concerning socio-economic indicators of every single district in Pakistan. But their work tends to pale in comparison to the trite work of big time donors who support their own aid bureaucracies and finance projects that have little productive outcome.
Let me conclude by suggesting the obvious: Pakistan’s economic salvation is not going to come through donor money, but through a home-grown reforms agenda, an agenda that weans Pakistan off of its debilitating dependence upon foreign aid. Since we’ve now outsourced economic management to a prominent donor (IMF), this is unlikely to happen anytime soon.
The writer is an economist