South Asia Investor Review

"Aid only postpones the basic solutions to crucial development problems by tentatively ameliorating their manifestations without tackling their root causes. The structural, political, economic, etc. damage that it inflicts upon recipient countries is also enormous.” These words were written in a letter to UN to refuse aid by Finance Minister Berhane Abrehe of Eritrea which is the 7th poorest nation in the world . Can Pakistan ( per capita annual income of $3000 ) do what Eritrea (per capita annual income of less than $700) has already done with UN aid? Say "No" to foreign aid? Pakistan Movement for Justice party leader and cricket hero Imran Khan thinks so. Echoing the sentiments of the Eritrean minister, Imran Khan told the BBC recently that "if we don't have aid we will be forced to make reforms and stand on our own feet." Let's examine in a little more detail the proposition that Pakistan should tell the United States to take its aid a...

As Pakistan's ruling elite and its ghairat brigade, led by PML's Sharif brothers, engage in loud empty rhetoric about infringement of their national sovereignty by the United States , here is something to ponder: Pakistan runs chronic budget deficits of around 5% of its GDP, and its government collects less than 10% of GDP in tax revenue which is among the lowest in the world. A big share of these deficits is funded by foreign aid and loans, making Pakistanis beholden to the interests and whims of major foreign donors and lenders. Pakistan's tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin . The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their in...

There has been much discussion but little action on the new US strategy to emphasize economic aid for Pakistan, in addition to the concerted NATO-Pakistan military action against the insurgents. The 80/20 rule , as outlined by General Petraeus, calls for 80% emphasis on the political/economic effort backed by 20% military component to fight the Taliban insurgency in both Pakistan and Afghanistan. This rule has led many to speculate about a US-backed "Marshall Plan" style effort to help Pakistan expand the economic opportunity for its young and growing population, vulnerable to exploitation by extremists . The Marshall Plan, named after General George Marshall, the US secretary of state after the Second World War, is credited with the rapid economic rise of Europe and Japan from the ruins of the war. The Marshall Plan aid by the US amounted to about 100 billion in today's dollars. Pakistani leadership called for their own "Marshall Plan" earlier this year, saying...

Relief organizations have calculated that as much as 75% of foreign aid by industrialized nations is directly tied to promoting exports of goods and services that support jobs in donor nations, achieving greater trade access in receiving countries or other economic and political strategies. Some of the aid comes with so many strings attached, including preferential tendering on contracts and the hiring of expensive consultants, that only 30-40% of dollar value is ever realized for the intended recipients. Then the rampant  official corruption  in the developing world further eats away at a big chunk of what is left. To make matters worse, the increasing percentages of budgets and GDP claimed by debt repayments take away money needed for basic human development needs, such as education and healthcare, in the developing world. In the United States for example, most of the food aid, including the additional $770m food aid last year, for the poor countries requires the aid rec...

In spite of all of the recent news about aid to Pakistan dominating the media, the fact remains that resurgent India has received more foreign aid than any other developing nation since the end of World War II--estimated at almost $100 billion since the beginning of its First Five-Year Plan in 1951. And it continues to receive more foreign aid in spite of impressive economic growth for almost a decade. India was the fourth largest recipient of aid (ODA) between 1995 to 2008 (US$26.1 billion), according to Global Humanitarian Assistance website . According to OECD group of the aid donor nations, the words "aid" and "assistance" refer to flows which qualify as Official Development Assistance (ODA) or Official Aid (OA). Such OA or ODA aid includes both grants and soft loans given by OECD nations and multi-lateral institutions like the World Bank, Asian Development Bank, IMF, etc. Britain will spend over $1.5 billion during the next three years in aid to Shini...