Rebuilding Pakistan the right way

The severe aftermath of the flooding in Pakistan has called attention to the need for not only humanitarian aid to help the tens of millions of Pakistanis affected by the flooding, but also for long-term sustainable development assistance to help Pakistan rebuild its critical infrastructure. The United States has a long history of giving development aid to Pakistan starting in the 1950s, but the question lies in whether these funds are actually used effectively for development projects.

While U.S. economic aid to Pakistan has ebbed and flowed throughout the decades, its value was more significant in the 1960s when money was actually being transferred to aid Pakistan’s development projects. Since September 11, 2001, the U.S. government has viewed committing aid to Pakistan as part of its broader national security strategy and interests in the South Asia region. Just last year, President Barack Obama signed the Enhanced Partnership with Pakistan Act, which committed $7.5 billion of development aid to Pakistan over five years. Senator John Kerry, a co-sponsor of the bill, said that this development aid is meant to build a relationship between the U.S. and the Pakistani people and "show that what we want is a relationship that meets their interests and needs." In July, at the U.S.-Pakistan Strategic Dialogue in Islamabad, Secretary of State Hillary Clinton admitted that there is a long-held perception by Pakistanis that the U.S. commitment to their country centers only on security; and that "this misperception … tells us we have not done a good enough job of connecting our partnership with concrete improvements in the lives of Pakistanis." She also stressed that the U.S. commitment reaches beyond security to further economic, political and educational growth.

But will the new $7.5 billion U.S. aid package reverse the negative Pakistani perceptions of United States assistance and result in long-term sustainable development for Pakistan and its people?

Most recent data shows that U.S. programmable aid to Pakistan amounted to $204 million in 2008, which translates to $1.10 per Pakistani. In fact, United States development assistance to Pakistan has been minimal in comparison with its aid commitments to Pakistan in the late 1960s and early 1970s — when the relations between the two countries were warm. At that time, U.S. development assistance helped build roads, power stations and a vibrant agricultural economy. Since then, Pakistan has seen little cash for development projects from the United States. In some cases, pledges were never translated into actual projects or were left unimplemented and later simply cancelled or forgotten. In other instances, the money never went to Pakistan or Pakistanis, but went straight to U.S. contractors to execute programs designed by the United States.

Programmable aid from the United States to Pakistan — gross aid disbursements excluding technical cooperation (where no money flows to Pakistan), food and humanitarian assistance (not designed for long-term development purposes), debt relief (write-offs on bad commercial loans that would not have been repaid anyway), and interest and principal repayments on past aid — was negative for almost 25 years between 1975 and 2000. This means that more money was being paid from the Pakistan budget to the United States Treasury than vice-versa.

Can the aid system break old habits and seriously allocate funds for development projects? In order to make aid more effective and to abide by the international guiding principles of aid effectiveness, development assistance must be reliable, predictable and substantial. The whopping $7.5 billion package — larger than most development aid packages — will only be effective in lifting Pakistan out of poverty if these pledges translate into real resource flows and are measured, prioritized and monitored once entering the country. Unlike before, the volatility of U.S. financial disbursements must be reduced and funding should be allocated to country programmable aid rather than U.S. contractors or administrative budgets. A development program should be properly designed, with monitored results, and maintained with sound macroeconomic management complemented by budgetary support. Aid can make a difference, particularly with rural development programs, including access to credit, rural roads and markets.

Coupled with the destruction from natural disasters — the 2005 earthquake and now the devastating aftermath from this summer’s floods — Pakistan urgently needs assistance to not only get back on its feet but to ensure long-term economic growth, improved institutional governance and a sense of wellbeing.

Homi Kharas is a Senior Fellow and Deputy Director of the Global Economy and Development program at Brookings; Eileen Gallagher is a Communications Associate with the Global Economy and Development program.