Nexus between aid and security: the case of Pakistan

Pakistan being a frontline state in the war against terrorism has also remained one of the highest recipients of foreign aid. This paper analyses foreign assistance through four main facets namely: the link between aid, security and growth with special reference to Pakistan, general equilibrium impact of foreign resource inflow on economic growth and poverty, aid effectiveness in Pakistan, and priorities for aid policy reform in the country. The empirical literature on the impact of aid on economic development in Pakistan is inconclusive due to aid being fragmented and volatile. The donors have remained poorly coordinated with a weak follow up mechanism. Pakistan for its part has seen mixed experiences in aid absorption. While a decade long nation-wide social action program could not translate into improved social and welfare indicators, there are some success stories such as: rural support networks, microfinance opportunities, cluster approach for earthquake relief and recovery. While the economic implications of prolonged reliance on aid indicate Dutch disease effects at the macroeconomic level in Pakistan, there are more concerning effects at that micro level where society has started to perceive aid as a compensation (and not assistance) for Pakistan’s involvement in wars led by developed nations. This behaviour besides corrupting the elite also promotes rent seeking where agents gaining from war have a vested interest in keep the conflict intensified. Pakistan along with its development partners has taken measures to move towards the directions indicated in Paris Declaration. The EAD is in the process of finalizing Foreign Assistance Policy Framework which is governed by principles that ensure compatibility and convergence of aid with national plans and improve quality, effectiveness and efficiency of foreign assistance. Having a national aid policy is all the more important at this stage when Pakistan is in the process of seeking assistance from the FoDP consortium and Kerry – Lugar arrangement with US. The improved mechanism should include appropriate amendments based upon the lessons learnt from past experiences. Finally as the reconstruction work takes off in the war-torn areas, there will be increased need for regular quantitative and qualitative analytical work by both government and donors. The research dissemination should then translate in to a process of effective dialogue between all stakeholders.