Essay No. 76:
A Foreign Aid – A Blessing Or A Curse? It is somewhat difficult to answer the proposition. First of all, foreign aid’s rationale must be understood. A poor country like Pakistan has to initiate a number of development projects in order to increase GDP for raising the income per capita. That is the way to fight economic poverty. A poor country does not have sufficient real savings to finance the development projects.
Investments are needed to finance and complete the projects, governments in poor countries are thus obliged to seek foreign aid in the form of loans for financing the development projects. The idea behind foreign aid is that the completion of projects with the help of foreign loans would go a long way in generating addition output in the economy.
It would help generate agricultural surpluses, which could be exported to pay off the borrowed loans. Foreign aid, in the long run, should become self-liquidating. The idea is not bad. Foreign aid is a means to help a poor country to achieve sustainable growth rate in the long run. Foreign aid is thus helpful to a poor country if aid is utilized effectively. It can give a boost to the economies of poor countries. In a way, it is a blessing.
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Foreign aid becomes a curse when it gives rise to debt servicing burden which a poor country like Pakistan cannot easily bear. Loans which are sought through different sources carry a high-interest rate. The borrowed loans are to be repaid in foreign exchange. The principal and compound interest go on accumulating over time, thereby compounding the difficulties of poor countries to repay the loans.
Pakistan has got 36 billion dollars to pay as external debt. It is an astounding amount and Pakistan is stuck up in a very precarious situation. More than forty per cent of budgetary resources are eaten away by external debt. It is a standing liability which restrains the nation’s capacity to import capital goods, heavy machinery to faster the rate of industrialization. Foreign aid, viewed from this angle, becomes a curse.
A debtor country like Pakistan has to meet the conditionalities of the donor countries, international lending agencies like the IMF, the World Bank etc. it cannot follow independent foreign/economic policies to promote the national interests. A debtor country loses independence and cannot pursue national interest-oriented policies. It is a great loss, for independence begins to appear like a myth.