Since independence,
Pakistan has been struggling to cope with political and macroeconomic
instability and has been relying on foreign aid and other capital
inflows. But because of inconsistent macroeconomic policies, millions of
people have been thrown into the ranks of the poor and the country has
not been able to help them.
According to the latest World Bank report entitled World Development
Indicators 2013, 60% of Pakistan’s population is living below the
poverty line, of which 21% households are found to be extremely poor
which live on less than $1.25 per day.
Pakistan is one of the biggest victims of terrorism after the 9/11
incidents. With a loss of 50,000 lives and about $100 billion in
economic terms, Pakistan is the only country which has suffered that
much. Furthermore, food insecurity, acute energy shortages, devastating
floods and growing extremism are adding fuel to the fire.
Foreign aid accounts for a larger share in foreign capital flows into
Pakistan, which are supposed to accelerate growth and development in
the country. However, in the presence of poorly crafted policies,
foreign assistance has no significant effect on economic growth and
development.
Though foreign aid and capital inflows leave some positive effect on
the gross domestic product (GDP), economic growth increases at a slow
pace. On the other hand, foreign capital flows have a negative impact on
the economy as well.
Studies show that the amount of external debt increases with a rise
in foreign capital inflows, which is largely the result of macroeconomic
mismanagement, mis-utilisation of assistance and inappropriate
policies.
A study of the trend in the past few decades suggests that foreign
aid increased during the period 1980 to 2002, but the country was caught
in a debt trap. The rise in external debt was mainly due to shift in
the composition of foreign aid from grants to hard loans. External debt
has also risen exponentially from 2002 to date.
Besides, there is no significant improvement on the social front.
This is because a major share of foreign assistance goes to repayment of
loans and debt servicing and very little is spent on education,
infrastructure, healthcare, population welfare and other social spheres.
Now, Pakistan must opt for a new mantra "No more aid but trade". A
question arises whether Pakistan is capable of steering itself out of
the economic mess and the vicious circle of poverty when trade goes up?
It is a proven fact that trade brings down poverty level all over the
world. Many studies indicate that opening up of trade has a positive
and significant impact on poverty reduction. So the world is becoming
more integrated and goods and services are crossing borders in line with
globalisation and regionalisation processes.
Additionally, free trade agreements among regional economies like the
European Union (EU) bloc have caused an increase in people’s welfare
and decrease in poverty in the region. This negates the commonly held
perception that developing countries and under-developed states need
foreign aid to combat economic woes and achieve growth and development.
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