Using foreign aid to come out of vicious cycle of poverty

There is a common saying that “cut your coat according to your cloth”. While this proverb gives a clear message to live within our available means, it also allows us to arrange a bigger piece of cloth to cut the coat according to the desired size. It is basically a call of an individual or a nation to go for i) exploiting extra resources to enjoy better living standards, ii) spend time in managing the existing resources or otherwise, and iii) start living beyond means by hook or by crook.

Since the known resources are scarce with seemingly uneven distribution, there always prevails fierce competition for acquiring possession between the haves and have-nots and even among those who find themselves less privileged. All kinds of fair and unfair means are adopted in order to gain control over maximum possible resources. This competition has been a common cause of hatred and jealousy among individuals and most of the times results into a war or a war-like situation among individuals/nations since medieval times.

However, in this acclaimed modern age when the world has changed into a global village, and agony and pain at one place is felt across the board, the intensity of resource grabbing struggle has been appeased to a larger extent by adopting the alternate approaches which include, but are not limited to, i) providing financial support to the resource lacking nations or people, ii) helping them in better utilizing of their tapped and un-tapped resources and iii) taking benefit of being declared as most favored nation or different trade related relaxations offered by the supporting countries.

Countries going through persistent i) fiscal and ii) balance of payments deficits, usually seek support from developed countries and international lending institutions to finance their short and medium terms strategies to remove the structural deficiencies fueling the deficits. At the receiving end, advantage of financial aid could effectively be availed only if an unconditional unidirectional resolve is posted to spend each bit of the borrowed money towards improving income generating capacity. A number of quotable instances like “where there is a will there is a way”; are there to witness where the resource deficit countries came out of the vicious cycle of poverty and emerged as developed nations by exploiting the potential of foreign aid.

During 1950s and 1960s, Pakistan took full advantage of foreign aid to bridge the resource gap and successfully moved from ‘take-off’ stage of economic growth to ‘self-sustained’ economic growth by generating new domestic investment. Consequently, the private investment rose from 42.5 percent of total investment in 1959-60 to 53.3 percent in 1969-70. Specialized financial institutions like Industrial Development Bank of Pakistan (IDBP) and Agricultural Development Bank of Pakistan (now Zarai Taraqiati Bank Limited) were established to meet the growing need of capital for bringing shift in productivity in large-scale manufacturing and agricultural sectors.

Unfortunately, the trends set in fair utilization and channelizing of foreign aid for development purposes during 1960s to 1980s could not be maintained after 1990s, because of frequent instances of using a significant part of foreign aid for serving the interest of a small influential group of the society and the political elite in the government circle. Moreover, the mishandling of foreign aid, which has continued over the last 20-25 years, has put us in a debt trap like situation. Resultantly, no significant effort could be made to expand the social safety net for the under privileged.

We are already in the state of living beyond our means. In the federal budget 2021-22, and even prior to that, we had to resort to external resources to finance a certain portion of current expenditures, as well. Living beyond means could never be a prudent call unless it means stretching oneself beyond his/her known skills and abilities, which could be useful for oneself and others, and be a source of real happiness – and not a false fantasy.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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