Of foreign aid and self-reliance

Reality check

Friday, August 28, 2009
Shafqat Mahmood

The friends of democratic Pakistan meeting in Istanbul has been less than friendly. While all the right noises have been made, not a single rupee is on its way. There is also tardiness regarding the money promised in Tokyo. Some of it will come, principally from the US and UK, but others are less than forthcoming.

One problem is lack of preparedness on our part. Many of these governments are democracies and answerable to their parliaments and the people. They are not going to write a cheque unless they know exactly where their money is going and what results it will achieve. This is where Pakistan has to give them comfort.

This can be done by preparing proper projects with all the costing done, a clear trajectory of cash flows and the specific results expected. Reports are that the Malakand rehabilitation project is likely to receive support because it has been well prepared. It is said to have all the benchmarks that satisfy potential donors.

The same diligence has to be shown in other areas but this is not the only problem. The donors are apprehensive that a large chunk of their money will go into the people's pockets. The Pakistan government will loudly protest and say this is not true. It will claim that it has procedures in place that track the spending of aid money and a robust auditing mechanism, ensuring that everything is done right.

This may be true but the issue here is perception, which is not really positive with regard to this government. Whether it has anything to do with the international image of President Zardari or the alleged wrong doings highlighted by the Pakistani media, the net result is deep apprehension. This is why the money promised in Tokyo is not coming through.

This creates a huge challenge for the government. Not only it has to be more diligent in preparing projects, it also has to improve its image. This is not going to be easy because ingrained perceptions are hard to remove. But, a start can be made if the leaders become visibly transparent and open in all their dealings. There are still too many stories swirling around of less-than-perfect behaviour on their part. And this is putting it mildly.

Secondly, those cabinet members that have acquired a particularly sordid reputation for corruption need to be sacked. We keep hearing that a cabinet reshuffle is coming but it must be an awfully long journey because we can't seem to get there. Most of the aid money is directed towards social sectors and if people with an unsavoury reputation sit there, it is not likely to give comfort to anybody.

It will also help to advertise to the donor community the system of fund monitoring and auditing that the government follows. Reports are that this has improved considerably and probably matches international standards but it may not be generally known. It may be useful for the ministry of finance to have a one-day conference to which all donors are invited and the basics explained. Sometimes we imagine that they know everything, but they may not, or some may and not others. There is no harm in re-emphasising a good point.

It could be argued that this entire debate is demeaning. Whether we are good or bad is not the issue. Seeking aid is no better than going around the world with a begging bowl. This is a good point but if we say no to foreign aid we must be prepared for the consequences. I do not know how exactly to translate the Urdu word 'ghairat' -- honour does not quite convey the meaning. But whatever it is, it comes with a price.

As things stand today, there will be a number of serious consequences if the aid flow stops. For one, we will not be able to service our international debt. This will have consequences for our imports, exports, trade and any matter in which the government has to give a guarantee. There are other difficult long-term ramifications but the point is that it will severely affect our economy.

This would mean that social and economic contradictions already visible in the society could reach chaotic proportions. We see just a glimpse of it in the madness that grips the people when subsidised wheat or foodstuff is being distributed. Inflation combined with reduced incomes has created a desperation that is already threatening to engulf us. Imagine what would happen if this becomes worse.

We take for granted the expenditure incurred by the government in health and education sectors. It is not much by international standards but nevertheless, the hospitals and schools are still running. Some of the space to do this is provided by external assistance. If it stops, schools, and hospitals and other public services will be adversely affected.

Another important statistic is that 80 per cent of our national development programme is funded by aid. This means most of the new roads and ports, and water and drainage projects -- besides new schemes in education and health – have been made possible mostly because of foreign assistance. These will all come to a halt.

This will create more difficulties because not only will much-needed projects stop, it will further slow down the national economy. Government expenditure is always an important stimulus to the economy and if it goes down, it has an across the board impact on trade and jobs, indeed on every aspect of the people's lives. It is for this reason that government's expenditure increases during recession.

One other aspect that must be noted is that if ever a no-foreign-aid situation emerges, we will have to re-order our spending because priorities will change. Money will have to be made available to keep the economy moving and the only other area to cut down on would be defence. In other words, however indirectly, foreign aid creates the fiscal space to spend on defence. If it is reduced or cut off, it will have important consequences for our security.

This is just a brief glimpse of some of the things that can happen if we say no to foreign aid. Of course, over a longer time frame, if we change our habits and try and live within our means, we can overcome this dependence. Self-reliance would mean the proverbial tightening of the belt, which isn't entirely impossible.

At this stage, it would be prudent to keep honour out of it. We are going through a difficult period of not only fighting insurgencies but also severe domestic and global recession. We need help now and should not shy away from it. Other nations also ask for assistance when they need it, as have some of the most developed countries in Europe and Japan in the past.

The only caveat is that we should not see this as temporary and while taking advantage of it, prepare for a future of total self-reliance.



Email: shafqatmd@gmail.com