Pakistan Foreign Aid Essay

Written by: Dr Muhammad Kaleemon March 14, 2016.

Every nation on this planet covets progress and development in every field of life. But, it is also a reality that while some countries are making huge headways in the realm of progress and development, others are still grappling with extreme poverty. Latest data suggest that nearly 1.3 billion people live in extreme poverty — less than $1.25 a day. There are many countries in the world that do not possess ample resources to feed their populations. So, they have to depend on aids and grants from developed countries or international financial institutions.

In today’s globalized world, every nation-state needs to maintain trade relations with other nation-states in order to run the country’s affairs. For this, they need also to depend on development banks, international donor agencies and other financial institutions so that inter-state trade and relations fare as per the norms of international law and a fairness in the deals is maintained.

Developing countries like Pakistan in their struggle for self-reliance need international assistance and foreign investment so as to fund the development projects in the country. Historically, the countries which got freedom from the colonial powers remained dependent on the developed countries except those which realized the need of making developments by relying on themselves rather than on foreign aid and loans. Unfortunately, successive governments in Pakistan resorted to running the country on foreign loans and aid. Consequently, the country is tangled in an intricate web of debt burden and deficit financing.

At present, Pakistan is the third largest debt-recipient country in the region. Its external debts have reached 33 percent of the GDP as compared to India’s 15 percent and China’s 7 percent.

When Pakistan became independent in 1947, it had meager resources and establishment of basic infrastructure was the biggest challenge for the nascent state. Moreover, the looming threat of Indian hegemony was also aggravating the situation. So, Pakistan reached USA for military and economic assistance and because of these factors, the country joined the capitalist bloc in Cold War era. From the very beginning, Pakistan’s growth model had been based on foreign dependence rather than capital accumulation from within the country. This policy led to increase in debt and a greater import-export imbalance. Economic policies adopted by successive governments were pro-rich; for example, Ayub Khan opted for trickle-down policies that only increased the gap between the haves and have-nots. This policy impeded country’s process of raising its own capital and reforming the tax regime. Although a lot of foreign capital was available, the rich as well as those in power did not bother taxing themselves. So, the governments had to rely heavily on indirect taxation which caused more poverty and further burdened the poor.

Foreign loans and grants always come with certain conditions that, in effect, means the country at the receiving end must not only bear an increased debt burden but also has to follow some conditions. Hence, such a loan is like a double-edged sword as it, on the one hand, fails in sufficiently fulfilling the needs of the recipient country while further piles up the debt, on the other. The incumbent PML-N government is also treading the same beaten track and is relying heavily on foreign lending which would causes more problems. The government needs to increase tax base by improving taxation system and imposing direct taxes to the rich landlords and big businessmen. Like its predecessors, the present government is trying to increase its revenue through indirect taxes. Nothing solid has been done in order to strengthen Federal Board of Revenue (FBR) where corruption prevails and an utter disregard to merit and consistency in policies is taking a heavy toll on country’s economy.

The government needs to introduce radical reforms and carve out prudent, pragmatic policies. Following suggestions may be instructive in this regard:

1. Country’s defence expenditure should be reduced as in this modern world of nuclear warfare having large arsenal of conventional weapons is not a wise option.

2. Pakistan’s economy is reeling under the claws of the elite of the country and this class is also at the helm of country’s affairs. Whenever an attempt is made to broaden the tax net, only a few privileged individuals become hurdle and thwart the emergence of progressive taxation. Unless these handful of people are meritedly taxed, the economy cannot improve.

3. Big landlords do not pay taxes on their incomes. Although, laws on agriculture tax have been imposed by the provincial governments yet it those are too weak and are like a nose of wax. Moreover, some landlords are out of tax net and exploiting their clout at the local level, they do not pay Abiana/ Water rate or other government dues. Hence, a stricter implementation of law is the most pressing need of the hour.

4. Pakistan’s tax machinery is weak and collects only a paltry amount in direct taxes whereas corruption is also rampant in it. The Tax Amnesty Schemes launched by different governments have failed to get the desire results. Radical reforms in this realm are direly needed.

Pakistan’s aid dependence is rooted in the very structure of the economy. It has been shaped by an institutional framework that restricts the process of savings and investments to the elite. Therefore, aid dependence can be overcome only by restructuring the economy through an institutional change that enables the middle class and the poor to participate in the process of savings, investment and innovation.

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Dr Muhammad Kaleem

"When [Musharraf] looks me in the eye and says, … ‘there won’t be a Taliban and won’t be al Qaeda,’ I believe him, you know?" So said George W. Bush of then Pakistani President Pervez Musharraf in September 2006. The U.S. president’s trust had been forged in a deal made five years earlier: Pakistan would train, equip, and deploy its Army and intelligence service in counterterrorism operations, and Washington promised to reimburse its partner with billions of dollars in weapons, supplies, and cold hard cash. The plan was simple enough, and since 2001,the United States has lived up to its pledge, pouring as much as $12 billion in overt aid and another $10 billion in covert aid to Pakistan.

But today, as the Obama administration re-examines the deal, there is devastating evidence that the billions spent in Pakistan have yielded little in return. For the last eight years, U.S. taxpayers’ money has funded hardly any bona fide counterterrorism successes, but quite a bit of corruption in the Pakistani Army and intelligence services. The money has enriched individuals at the expense of the proper functioning of the country’s institutions. It has provided habitual kleptocrats with further incentives to skim off the top. Despite the U.S. goal of encouraging democratization, assistance to Pakistan has actually weakened the country’s civilian government. And perhaps worst of all, it has hindered Pakistan’s ability to fight terrorists.

How could so much money do so much harm? The first answer is simply that the Pakistani civilian government, with whom Bush signed his agreement, barely controls the Army and intelligence services — the very institutions meant to receive the bulk of U.S. funds. Until last year, the closest the Army came to accounting for its work was its annual budget submission: a single, bottom-line dollar figure that the government was constitutionally bound to approve. Even now, after a much-hailed move toward more oversight, the Army’s most recent annual budget submission was just two pages. And Pakistan’s Inter-Services Intelligence (ISI) — a powerful and independent military agency — is no better. Last year the Interior Ministry requested that it report to the government; the ISI declined the invitation.

Long before the Bush-Musharraf agreement, money from such unsupervised budgets had enabled the Army to become one of the richest and largest industrial, banking, and landowning bodies in Pakistan. The military formed its own networks of political patronage, co-opting existing political parties with threats and bribes. With the injection of the U.S. cash, this already prevalent military corruption was thrust into high gear. The extra money further discouraged the military and intelligence services from submitting to civilian control — a precondition for the country’s democratization.

From the U.S. taxpayers’ point of view, that’s the least of the bad news.

Pakistan did not use the majority of the funds for the agreed objective of fighting terrorism. Instead, the money was used in the way it has been for the last six decades: to train and stock the Army for conventional warfare, with India viewed as the main threat. The Army spent the vast majority of U.S. funds on types of military equipment that are practically useless against terrorists. It bought an air defense radar system costing $200 million, for example, even though the terrorists in the frontier region have no air capability. The military bought F-16 fighter jets, aircraft-mounted armaments, and anti-ship defense systems. And the U.S. Department of Defense signed off on it.

Another chunk of the money fed corruption, as is clear from the fact that money was not often spent on the purposes for which it was intended. Of the $920 million in military support that the United States gave Pakistan in 2008 alone, only $300 million reached the Army. The Washington-based Atlantic Council estimates that "the great majority" ended up in the coffers of the Ministry of Finance.

The rot goes still deeper. U.S. taxpayers paid $1.5 million to repair damage to Navy vehicles that did not see combat (the terrorists don’t have navies, either). Another $15 million went for bunkers that were never dug; $30 million paid for roads that were never built; $55 million went to maintain helicopters that were not, in fact, maintained; and $80 million per month was paid for soldiers to fight during periods when there was a cease-fire.

Meanwhile, U.S. officials visiting the frontier areas, where militants including the Taliban are most entrenched, found that the paramilitary Pakistani Frontier Corps was poorly equipped, even "standing there in the snow in sandals," according to one report. Several soldiers were equipped with World War I-era pith helmets and barely functional Kalashnikov rifles with "just 10 rounds of ammunition apiece." In an interview with the New York Timesin November 2007,Musharraf complained that Pakistan’s helicopters needed more U.S. spare parts and support, despite the United States’ having given his country $8 million worth of helicopter parts over the previous six months.

There’s plenty of blame to go around for such dreadful mismanagement. Part of it, of course, goes to Pakistan. But another chunk falls squarely on U.S. shoulders. From the start, there were few concrete goals for how the funds should be spent. Officials who saw the objectives admitted that they often lacked concrete bench marks, sometimes even concrete figures, and were too vague to be effective.

And until 2006, the U.S. Embassy staff in Pakistan was not required to follow up on how the Pakistani military actually spent U.S. funds. The problem was compounded when the Pakistani Army insisted that the Federally Administered Tribal Areas — where much of the money was to be spent — were too dangerous to visit, making sustained oversight there impossible. Finally, the U.S. Department of Defense refused to release detailed figures on Pakistan military aid until 2009, making public scrutiny impossible.

Whomever you impugn, the bottom line is that the U.S.-Pakistan compact of the last eight years has been a disaster. It is essential to ensure that the same mistakes do not happen again. U.S. taxpayers have funded Pakistani corruption and undermined the fight against terrorism and militancy. And for the sake of both countries, it simply has to stop.

Tags: Afghanistan, AfPak Channel, al Qaeda, Argument, Bush Administration, Corruption, Default, Development, Diplomacy, Foreign Aid, Free, Middle East, Military, North America, Pakistan, Security, South Asia, State Department, Terrorism, U.S. Congress, U.S. Foreign Policy, Web Exclusive

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