Document Type

Conference Paper

Publication Date

1991

Author Affiliation

The World Bank

Conference Name

Financing Pakistan's Development in the 1990s

Conference Dates

1991-12-15

First Page

1

Last Page

20

Keywords

External debt, Foreign aid, Pakistan

Abstract / Description

Pakistan is among a select group of developing countries which have relied heavily on external sources of financing for their development. This strategy has helped Pakistan in achieving reasonable growth in per capita incomes and consumption. A combination of propitious factors has enabled Pakistan to attract relatively high level of external resources in the past, but it is becoming clear that this level is untenable over the long run. The costs of this heavy dependence on external resource flows have started manifesting themselves in various forms and questions are being asked whether it is in the collective national interest to continue this strategy unabated, It appears that there is a growing consensus-at least ostensibly and at the level of rhetoric- that the country would be better served by reducing this heavy dependence. No doubt this is a welcome move which deserves serious consideration but there has been very little open discussion and debate about the implications of this option and particularly of the tradeoffs involved. It is not feasible to cut external resource flows while maintaining at the same time the present level of consumption, national income and imports. Historical experience suggests that it is only the countries which have been able to raise and maintain high rates of domestic saving that have achieved impressive growth rates on a sustainable basis. We do propose, at this juncture, to enter the theoretical debate in the literature whether foreign savings displace the domestic saving effort or not but empirical evidence is strong that the countries which help themselves emerge as the winner in the long term. Foreign aid of the right type and quality can have a positive impact if the macroeconomic policies are right, microeconomic incentives are not distorted and the supporting institutions are in place. In absence of these preconditions foreign aid can only help the countries postpone the tough decisions required for prudent economic management. Under those circumstances foreign aid is a curse which should be avoided.

Comments

The views expressed in this paper are the personal views of the author and do not necessarily represent the views of the World Bank. The author was Chief Economist, Africa Region, at the time of writing. IH0313

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