Foreign Aid & Conflict

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Foreign Aid and Conflict in Pakistan. The Impact of Aid and Conflict on Pakistan Economy

Transcript of Foreign Aid & Conflict

  • 1. Nexus Between Aid & Security: The Case of PakistanVaqar Ahmed (vahmed@gmail.com) Muhammad Abdul Wahab (wahab.907@gmail.com)Please do not quote without authors permission International conference on Policy Priorities For Foreign Aid Reform In South Asia 29-30 July 2010 at lvy Room, cinnamon Grand Colombo Organized by institute of Policy studies of Sri Lanka and Friedrich Ebert Stiftung, Columbo1

2. Outline Linking Macroeconomy with Aid Macro Micro Impact of Foreign Resources Role of Aid in Pakistan Economy Foreign Assistance and Regional Security Aid Effectiveness in Pakistan Priorities for Aid Policy Reform in Pakistan2 3. Linking Macroeconomy with Aid 3 4. Trends 2005 2010 ($ Billion) % Indicators2005 2007 2008 2009 2010 2007 -2009 GDP Growth9.06.83.71.24.1 Export 14.5 17.3 20.4 19.1 19.6 10.4 Import19 2735.4 31.7 30.5 17.4 Remittances 4.25.56.56.48.9 16.4 Private Capital Inflow1.27.16.23.12.9 -56.3 Official Capital Inflow 1.32.21.81.0-54.5 Official Assistance0.47 1.79 1.17 0.04-97.8 Foreign Direct Investment 1.55.15.43.72.3 -27.5 Inflation (CPI %) 9.37.81222.4 10.1 Pro-poor Expenditure5.37.0 3.8-45.7 Poverty headcount (%)23.935 4 5. Macro Micro Impact of Foreign Resources 5 6. Results from CGE Model A 50 percent increase in foreign savings: Increase in real private consumption by 2.8 percent Given the greater amount of foreign exchange available,imports increase by 3.7 percent. However exports decline by 6.5 percent. Household welfare increases for all segments [highest forrural workers] Welfare Gain Vs. Dutch Disease6 7. Role of Aid in Pakistan Economy 7 8. Debt Stock Outstanding (US $ billion) 60 50 40US $ Billion 30 20 10 -1980 19821984 19861988 19901992 19941996 19982000 20022004 20062008External DebtDomestic Debt 8 9. External Debt and Servicing 35 30 25 20 15 10 5 020052006200720082009 2010Total External Debt % of GDP Debt Servicing as % Of Export Receipts 9 10. Revenue Mobilization10 11. Plan wise Disbursements ($ Million)PeriodLoanGrants Total % of Grant 1. Upto 30-06-1960192 65084277.2 II. 2nd Plan (1961-65) 1232 1162239448.5 III. 3rd Plan (1966-70)2324 719 304323.6 IV. Non-Plan (1971-78) 5083 634 5717 11.1 V. 5th Plan (1979-83)4418 1375579323.7 VI. 6th Plan(1984-88)5158 2025718328.2 VII. 7th Plan (1989-93)9540 254112081 21.0 VIII. 8th Plan (1994-98) 115221226127489.6 IX. 1999-200712824538018204 29.6 Grand Total52293 1571268005 23.111 12. Harsher Terms Period Interest Payment Grace %(Years)period(Years)1960s3.330 7 1970s3.625 6 1980s4.828 7 1990s4.421 612 13. Top 5 Sectoral Disbursements 2000 and 2009Rank 2000 2009Transport and1Power Communication2Social welfarePower Transport and3 Rural Development communication 4FuelWaterEducation and5WaterTraining13 14. 0 2 4 6 8 1012 1416196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006 Net ODA received per capita (current US$) 14 15. 0 2 4 6 8 10121960196219641966196819701972197419761978198019821984198619881990199219941996 Net ODA received (% of GNI)19982000200220042006 15 16. Foreign Assistance and Regional Security16 17. Three Major War Fronts 17 18. Net ODA received per capita (Current US$) 180160Afghanistan 140120Current US $ 100 80 60 Sri Lanka 40 Nepal20 Pakistan 0 18 19. Net ODA received (% of GNI) 504540Afghanistan 35302520 Nepal 15 Sri Lanka 10 Pakistan5 01 2 3 4 567 89 10 11 12 13 14 15 16 17 18 19 Afghanistan Pakistan Sri Lanka Nepal19 20. US $ Million 0 50100 150200 250 300 350 19801982 1984198619881990 199219941996199820002002 2004 Aid Towards Afghan Relief2006 2008 20 21. Damage to Pakistan Economy Total 2005 2006 2007 2008 200920102005-10 Direct Costs 677883109 114 262 712 (Rs. Billion) Indirect Costs (Rs.192 223 278 376 564 707 2340 Billion)Total 259 301 361 484 678 969 3052Total in $ 4.4 5.0 6.0 7.7 8.6 11.543.2 billion 21 22. Damage to Pakistan Economy Total2005 2006 2007 2008 2009 20102005-10 Total in $ 4.4 5.0 6.0 7.7 8.6 11.543.2 billion This is loss to physical assets and business only. This loss does not account for: Loss of human life Loss of institutions Loss of investors base Loss of skill base22 23. Aid, Loss of Life and Damage to the Economy ODA currentAid to Death Economic loss Aid to Economic Loss ($ million)Ratio($ million)ratio2002 - -- 2136 20033.5-- 1071 20041.5-- 1439 20051.944000.37 1607 20061.350000.43 2140 20070.660000.37 2244 20080.277000.20 153923 24. Aid inflows during Various Political Regimes Aid Per-capita Aid RegimeFrom ToReceived Total Aid (Current US $)% of GNI $ MillionAyub Khan (Military) 1958 1969 7.6 7.03904 Yahya Khan 1969 19716.4 3.91148 (Military) Zulfiquar Ali Bhutto 1971 19777.5 4.73859 (Civil) Zia-ul-Haq (Military) 1977 19889.5 3.09641 From 1988 to 1998 1988 19909.4 2.2 10525 (Civil) Pervaiz Musharraf 1999 2007 10.3 1.7 13096 (Military) 24 25. Aid Effectiveness in Pakistan 25 26. Paris Declaration Monitoring Survey Around 88 percent of total ODA disbursed by the government sector was recorded in the government system. This was due to increase in budget support in 2005 and governments action to align its budget with priorities defined in Medium Term Development Framework. Out of the total ODA disbursed in 2005, 68% was disbursed by using the national procurement systems. In total, 7 out of 16 donors used the national procurement systems. 26 27. Paris Declaration Monitoring Survey However, only three of them (WB, ADB, USAID) account together for 97% of the total ODA disbursed by using national procurement systems. The vast majority of donors disbursed none or very small amounts of ODA by using the national procurement systems. Out of the total ODA provided for technical cooperation in 2005, only 28% was disbursed in support of coordinated capacity development programmes.27 28. Paris Declaration Monitoring Survey The proportion of joint missions and joint analytical work is relatively low at 12% and 41% respectively. Coordinated missions and analytical work are still only conducted on an ad-hoc basis, but there are plans in place to achieve more systematic coordination. 28 29. Priorities for Aid Policy Reform in Pakistan29 30. Development Planning Process in Pakistan Preparation of approach paper Formulation of technical working groups in Consultations with allConsultations with allall sectors Federal Ministries for inputProvincial Govts. for input Preparation of sectoral chapters byworking groups and their presentationbefore Planning Commission Sent to all Federal MinistriesSent to all Provincial Govts. and Dev. Partners for Economic Planfor comments and input comments and inputFinance DivisionFinalization of draft plan by PlanningEconomic Affairs Division(Resource Availability)Commission and its presentation before(Foreign aid availability) President/Prime MinisterSubmission to National Economic CouncilRequirements, programming (NEC)and negotiations for externaleconomic assistanceCirculation of approved plan to all External debt management Provincial Govts. And Federal Ministries for implementationTransformation of plan into viable projects/programmes30 31. Planning for GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) Commerce 31 32. Planning for GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) Commerce 32 33. Planning for GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) Commerce 33 34. Planning for (Inclusive) GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) Commerce 34 35. Planning for (Inclusive) GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) Commerce 35 36. Planning for (Inclusive) GrowthEconomicGrowthInvestmentProductivity Market Development TechnicalInnovations Entrepreneurship Reforms BudgetSkillsGeography Domestic(Cities) CommerceAid Agenda that focuses on Market based solutions36 37. Policy Priorities for Aid Reform Draft Foreign Assistance Policy Framework Friends of Democratic Pakistan (FoDP) Consensus BuildingSecurity Plan Governance PlanSocio-economic Plan Kerry Lugar Bill Pakistan as a Global Player 37 38. Conclusion The empirical literature on the impact of aid on economic development in Pakistan is inconclusive There are more concerning effects at that micro level where society has started to perceive aid as a compensation (and not assistance) for Pakistans involvement in war Pakistan urgently needs a new Aid Policy for managing increased aid flows Finally as the reconstruction work takes off in the war- torn areas, there will be increased need for regular/coordinated analyticalwork by both government and donors38 39. Many ThanksDr. Vaqar Ahmed Planning Commission of Pakistan vahmed@gmail.com39