Opinion | Pakistan’s economy on foreign toes.

A begging country has made the people of Pakistan dependent on foreign aid due to its corrupt leadership, interference of the army, and instability in social

Pakistan’s economic journey has been deeply intertwined with foreign aid, a critical lifeline that has helped it navigate through numerous financial crises. Since its independence in 1947, Pakistan has received significant aid from international institutions like the International Monetary Fund (IMF) and the World Bank, as well as countries such as the United States, China, and Saudi Arabia. As of 2023, Pakistan’s external debt stood at around $126 billion, with a substantial portion comprising concessional loans and aid packages. The IMF, in particular, has been a key player, with Pakistan entering into 23 loan agreements with the IMF since 1958. The most recent agreement, a $3 billion bailout package approved in July 2023, aimed to stabilize Pakistan’s precarious economic situation marked by high inflation and low foreign exchange reserves.
Foreign aid has provided critical support to Pakistan in several ways. Firstly, it has been essential for economic stabilization during crises. IMF loans and support from other international donors have bolstered Pakistan’s foreign exchange reserves, preventing the country from defaulting on its debt obligations. Secondly, aid has funded significant infrastructure projects that are vital for economic growth. For example, China’s investment through the China-Pakistan Economic Corridor (CPEC) has led to the development of highways, power plants, and port facilities, which are crucial for enhancing trade and connectivity. Thirdly, foreign aid has supported social programs aimed at poverty alleviation, education, and healthcare. The United States Agency for International Development (USAID) has funded numerous projects to improve literacy rates and health outcomes in Pakistan.

However, Pakistan’s heavy reliance on foreign aid has also led to several negative consequences. One of the primary issues is debt dependency and the associated sovereignty concerns. Pakistan’s continuous cycle of borrowing, where new loans are often used to service old debts, has compromised its economic sovereignty. Donor countries and institutions sometimes dictate economic policies as conditions for aid, as seen with IMF loan packages that often come with stringent conditions like reducing subsidies and increasing taxes. These conditions can lead to public unrest and social instability. Moreover, the availability of foreign aid can undermine the need for fiscal discipline, delaying essential economic reforms. This has been evident in Pakistan’s repeated failure to broaden its tax base and reduce public sector losses, contributing to persistent budget deficits.
Another significant issue is that foreign aid can create economic distortions by fostering dependency rather than self-sufficiency. Large inflows of aid can lead to an appreciation of the local currency, making exports less competitive internationally—a phenomenon known as the “Dutch Disease.” This reduces the incentive for domestic industries to innovate and become more efficient. Furthermore, the influx of foreign aid has sometimes led to corruption and mismanagement. Reports of funds being misused or siphoned off for non-developmental purposes have plagued many aid programs, reducing their effectiveness in achieving long-term development goals.
To reduce its dependency on foreign aid, Pakistan must implement several critical measures. Comprehensive economic reforms are necessary to improve governance, reduce public sector inefficiencies, and broaden the tax base. Enhancing exports is crucial for earning foreign exchange and reducing the need for external borrowing. This requires Pakistan to diversify its export base and enhance its industrial competitiveness. Additionally, improving domestic revenue collection through better tax policies and administration is essential. Pakistan’s tax-to-GDP ratio is among the lowest in the world, indicating significant room for improvement. Encouraging foreign direct investment (FDI) can provide a more sustainable source of external funding than aid. Creating a favorable business environment and addressing security concerns are key steps in this direction.
In conclusion, while foreign aid has played a vital role in Pakistan’s economic survival and development, it has also created a cycle of dependency and exposed the country to external influences. Moving forward, Pakistan must balance the immediate benefits of aid with long-term strategies to achieve economic self-reliance and sustainable growth. By focusing on structural reforms, enhancing exports, and strengthening domestic revenue mechanisms, Pakistan can reduce its reliance on foreign aid and chart a more independent economic future.
vaizzargar@rediffmail.com