Pakistan Dependence of Foreign Aid and Its Impact on Country
Foreign aid defines as internationally worldwide exchange of funds, capital, goods and services from rich countries and international organization like United Nations, IMF to poor and developing countries.
Impact of Foreign Aid on Economy of country
In the past few years very rapid increase in flow of trade to developing countries has been seen. Now many countries depend on foreign aid to run their economy. Foreign aid has significant impact on economy of country.
When a country receives any kind of aid specially in the form of money and use the aid with effective policies then it will grow the economy of country. If used effectively foreign aid increase economic activities of country which leads to increase in employment opportunities. Government introduce new industries, organizations, firms and services which in return increase job opportunities. Foreign aid reduces the poverty of recipient country. Foreign aid boosts the capital of country and give a big-push to poor countries to get rid of low-level trap and starts the economic cycle. When a country or organization provides foreign aid it also controls economic activities of country and implement their own economic policies and recipient country also receive some economic expertise who works to better the economy. Foreign aid is very effective in the time of natural disasters like flood and earthquake. It helps the countries to overcome the difficulties. Many countries recover from foreign aid after disaster. It has saved millions of lives and homes. Foreign aid can also be in other forms like transfer of technology from developed countries to developing countries. The gap because of technology leads to economic gap between countries and can be filled by aid. Most of developing countries are currently in debt foreign aid helps to eliminate national debt. Also many developed countries forgive debt and consider it foreign aid. It helps the country to remain independent. Hence foreign aid is necessary for poor and developing countries.
Trends and Impact of Foreign Aid in history of Pakistan
Pakistan is a developing country and still trapped in poverty. In Pakistan low income results in low saving ratio which in result discourage investment. Low income results in low tax revenue and hence government earning also remains low. Hence Pakistan has to face major problems like investment deficit and deficit in balance of payments. According to two gap model developing and poor country have to depend upon foreign capital inflow to solve these problems. All poor and developing countries depends upon Foreign Capital Inflow for economic growth. The most important foreign capital inflow in Pakistan is foreign aid and it play very important role in country’s economic development. Pakistan lacks all kind of capital and hence depends on foreign aid. Pakistan has been receiving aid since its independence. A researcher from his research finds that foreign capital inflow decreased the national savings of Pakistan in 1960. Aid also leads to debt problems if used ineffectively and due to poor policies many times happened in Pakistan. Foreign aid is very important for development, investment, growth etc. but also became the reason of increase in debt. First aid program for Pakistan was Colombo plan in 1950. And in 60’s Pakistan again received large amount of foreign aid for 5 years. Aid increased in time period 1960-66 but slightly decreased in 1968-73. Increasing trend has been seen in aid from 1978 to 1988. In 80’s Pakistan received huge aid from USA to fight against Soviet Union. In 1986 Pakistan got $4.02 billion for next six years. The aid decreased in 90’s. During 2002-2011 Pakistani government received total aid of $18 billion. This was basically economic and military aid to fight against terrorism. Pakistan still depends upon US aid. Recently Pakistan received aid of $15 million for democracy program and also received $10 million for gender program. Hence we can say that in Pakistan foreign aid has increased economic growth but at other hand discourage domestic savings.
Impact of trade on economy of a country
Economy is the financial running of a country; it is considered as the supreme vital interest of the state. Trade in simple words can be defined as the process of give and take and vice versa. It is the universal rule of nature that nothing is free “there is nothing like a free lunch”. Cost benefit analysis comes into play in every sphere of life, if one wants something then he/she has to let go something else. Cost benefit analysis is something that is quite important for economists and policymakers. Trade comes with its cost and benefits. In the modern day capitalist system, the economies of nation states run mostly on trade. In contemporary era and globalization, a nation state cannot be totally self-sufficient with self-production and consumption means. In short a country cannot manufacture every single commodity of its need as there are not enough resources available so economists have to manage to meet infinite needs in finite resources. In order to meet the infinite needs with finite resources countries have to consider trade. The benefit of trade is that countries can import goods which they can’t manufacture at a lower price by trading it with some of its own products of equal worth to the country from which goods were imported as that specific country needed those commodities but couldn’t produce it. For example, United States of America (USA) imports crude oil from Kingdom of Saudi Arabia (KSA) and exports weapons and military hardware to KSA, so there exists an oil-weapon trade off. Tax collection is the lifeline of any government. With trade increasing the respective governments get to generate more revenue by imposing tax on trade commodities.
Aid Dependency of Pakistan
Aid Dependency is defined as an economic problem. It defines the dependency of Less Developed Countries on More Developed Countries in terms of resources and financial aid. Aid dependency also defines the proportion of government spending given by foreign banks. A country that has an aid dependency ratio of 15-20%, will have negative impacts on the economy. Inhibition of development and political/economic reforms are the main reasons behind dependency. Aid dependency rises when the countries have given aid to poor countries for longer periods and the developing countries have become dependent on that aid. Aid is motivated by helping the poor nations, donors have their own political, welfare, strategic and economic interested behind the aid.
In case of Pakistan, foreign aid has made the citizens lose their motivation to work, they work less which result in lower incomes. Less motivated workforce results in less economic progress and the living standards of the people can not be improved. Pakistan has more Imports than Exports. And more imports make the country poor there should be a balance between imports and exports of a country. Pakistan has factor abundance in the production of many products but it lacks the technology. That is why Pakistan is dependent on other nations for many products. Pakistan is dependent in terms of development and growth on foreign capital inflows.
Conclusion
Pakistan is now dependent on foreign aid and on international financial institutions. It is receiving billions of dollars as loans and foreign aid. But now is the time to think about what is more important for Pakistan Aid or Trade. Answer to this question is in current scenario we need Aid for Trade and not merely Trade. Because most of the people think that Pakistan only needs trade but it is not correct and misleading. There are two reasons that why it isn’t right, first is that people think that country has two opinions to choose between them foreign aid and access to products in export markets that Pakistan will choose later. Second is that they think Pakistan is in position to get the benefits when they are offered increased market access. But the reality is completely opposite Pakistan needs both Trade and Aid. We need aid to secure the benefits from increased market access for our exports. Aid is needed for the production of goods and services in the country. Because currently Pakistan needs to be an effective player in regional and global economic scenarios. It’s first goal is to overcome costs of trade liberalization. According to World Trade Organization “Aid for Trade” is for the assistance of developing nations to increase the production for more exports of goods and services and to become a part of multilateral trading system. Pakistan is founding member of WTO and signatory to bilateral and regional trading arrangements. Pakistan has secured better market access for exports and liberalized its trade regime. But it is unable to get the benefits of multilateral integration because of lack of production and competitiveness. For better economic growth and economic stability Pakistan is dependent on foreign aid for trade.
