Bilateral official economic assistance from developed to developing countries has always been loaded with political and foreign policy overtones of donors. In Pakistan, US economic aid has become a highly contentious issue due to the widely differing perceptions about its motivation and consequences among the donor and recipient countries. The debate about the future of this assistance has been reignited after Osama bin Laden’s capture by the US.

The popular narrative in the US as articulated by the media, a few think-tanks and congressmen rests on the premise that Pakistan is almost at the brink of bankruptcy and it is the US assistance that is providing the lifeline for sustenance. The penalty for deviant behaviour on the part of Pakistan should be severe and aid should be suspended, curtailed or withdrawn as it is only through these punitive measures that Pakistan would fall in line. Many other Americans believe that helping Pakistan is simply not worth the time ‘or money’ and that by doing so their hard-earned tax money is going down the drain. Given the high domestic unemployment rate and growing fiscal deficit it is better to stop the aid to Pakistan. A more benign variant prevailing among some US politicians and scholars is that Pakistan has been let down too many times by the US in the past and the best way to demonstrate our long term strategic commitment to Pakistan is to help the country in its pursuit of economic development. Both these approaches — stick or carrot — are based on the tacit assumption that the quantum of US assistance is so significant that it would be able to invoke the alteration in Pakistan’s behaviour. The fact of the matter is that — US aid does not help the government’s precarious fiscal situation in any meaningful way as only 12-15 per cent of the total amount is channelled for budgetary support.

In Pakistan also, there are several viewpoints about the efficacy and impact of US aid. A large number of Pakistanis are deeply resentful that the US has been able to obtain a disproportionate leverage on Pakistan’s policy space because of this paltry sum. The sovereign autonomy and dignity has been sacrificed and the country has been relegated to the status of a client state or ‘rent-a-state’. The long-term stability of the country is at risk because of this painful obsequiousness and submissive alliance.

Another group believes that by entangling in the war on terror, Pakistan has suffered enormous losses financially, economically, socially and psychologically and the compensation being paid by the US for this colossal damage amounts to almost nothing. It is estimated that during 2000-10, the US spent Rs2,000 billion in Afghanistan, Iraq and on beefing up domestic security. Pakistan’s share of this amount was Rs20 billion or 0.1 per cent, while the country has lost 35,000 civilians and soldiers, in addition to suffering disruption and dislocation of the economy, displacement of population, a several-fold increase in expenditure on military operations and internal security, almost virtual boycott of Pakistan by external visitors and a state of perpetual fear, etc. Out of the amount received, Rs8 billion under the Coalition Support Fund was simply reimbursement of the expenditures incurred on logistical support and supplies to Nato and US troops. A third group believes that despite the late Mr Holbrooke and Secretary Clinton’s best efforts, the divergence between the development priorities of the government of Pakistan and US aid remains wide. This is borne out by the report of the Centre for Global Development — the leading US think-tank on development issues (Note: I must disclose that I was a member of the Study Group that produced this Report). In assessing US assistance to Pakistan, the report notes that “the integration of development, diplomacy and defence has muddled the development mission and left the programme without a clear, focused mandate. The Kerry-Lugar legislation lists no fewer than 11 different objectives of US policy. As a result, the aid decisions are too often politicised and subject to short-term pressures. Overall, the programme ends up trying to do too much, too quickly.”

In light of these widely different perceptions it may sound ironical to suggest that it would be better for both the US and Pakistan that the US bilateral official assistance is terminated sooner than later. The growing ‘trust deficit’ between the two countries will be bridged when the US Congressmen would not have a stick to hurl at Pakistan and the pressure tactics they apply too openly and too frequently would come to an end. Ordinary US citizens would have no qualm that their taxes are being wasted in a country for which they have very little empathy. In Pakistan, the political leadership would have to take some tough decisions to mobilise domestic resources rather than always choosing the soft option of foreign aid as a substitute. The Pakistani intelligentsia would no longer be concerned about the loss of honour, sovereignty and dignity in exchange for a few billions of dollars.

How about the question so common in the vocabulary of both the Americans as well as many Pakistanis: Will Pakistan be economically able to cope with the loss of US assistance? The facts speak for themselves. Although the Congress authorised a tripling of development assistance in 2008 to $1.5 billion per year, the actual disbursements in Fiscal Year 2009 were $275 million and $676 million in Fiscal 2010, including $500 million spent on flood relief. Assuming that the whole $3 billion in economic and military assistance (including $1 billion under the Coalition Support Fund) is disbursed fully, this accounts for less than seven per cent of the total foreign exchange earnings of the country. The increase in export revenues and remittances in the current year was almost twice that amount. Had foreign direct investment flows not been disrupted (Pakistan received Rs5 billion in 2006-07) US aid would have become even less significant in the overall capital flows. World Bank data shows that net Official Development Assistance (ODA) from all sources to Pakistan in the last five years has averaged less than 1.5 per cent of Gross National Income (GNI). In 1990, ODA formed 2.7 per cent of GNI. Aid per capita from all sources in 2009 was $14 only. US aid also does not help the government’s precarious fiscal situation in any meaningful way as only 12-15 per cent of the total amount is channeled for budgetary support. These facts do not, by any means, indicate that the Pakistani economy will collapse if the US decides to withdraw its assistance.

When Secretary Clinton visits Pakistan we should thank her for the hard work the US administration did in getting the Kerry-Lugar legislation approved, but indicate that Pakistan would like to unilaterally withdraw from receiving assistance under it. Our strategic dialogue should continue to explore other avenues of cooperation. It is fair to assume that this step would lead towards building a strong and lasting relationship between the two countries based on mutual respect.



The writer is dean and director of IBA, Karachi and a former governor of the State Bank of Pakistan ishrat.husain@tribune.com.pk