Does Pakistan really survive on US aid?
by R Kashyap on 22 Mar 2012 22 Comments

A long reigning orthodoxy among India’s Pakistan experts is the profound belief, propagated with the most passionate intensity, that Pakistan has survived its 65-year existence apart from the motherland only on account of American aid. Somehow this myth gives Indians a sense of vicarious redemption, by shoring up their self-esteem, and excusing them for the grim failure to keep the country united.

Indian experts pander to this mindset, which upholds the myth that Pakistan has gone to seed as a country, and is little more than a failed State, which is doubly dangerous for the neighbourhood on account of possessing nuclear weapons and a highly mobile population of volatile trigger-happy terrorists.

Conventional wisdom in India states that the idea of Pakistan was flawed to begin with, which may be valid from a civilisational perspective. But the corollary offered to this thesis – namely that Pakistan’s economic travails prove that it was a bad idea – is not supported by statistics.

It stands to reason that if a nation is surviving on foreign aid, then that aid should comprise a significant percentage of its GDP.

Yet, since the creation of Pakistan, US aid to the country has been pegged at $61 billion, which is miniscule in percentage terms of the nation’s GDP which stands at $175 billion. Annual US assistance to Pakistan at present is not even $1.8 billion. For a population of 180 million this comes to around $ 10 per head only. If that’s survival, it’s poverty line survival, not worth mortgaging body and soul for.

The proposed financial support to Pakistan by the US for the period up to 2013 is pegged at around $ 2.4 billion. This amount looks further diminished if one separates military and civil assistance. It is worth mentioning that a large part of the military assistance comes for weapons purchase from the US. Therefore, that money gets recycled into the US economy only. How can a nation as large as Pakistan survive on such a miniscule amount of aid?

Actually, Pakistan, like India, has a large expatriate population in the Middle East and the West; their remittances are a huge foreign exchange earner. Pakistan gets around $12 billion annually from such remittances, which match the amount the US has given to the country in the last ten years. It follows that what expatriates send in one month, Washington gives in one year. This factor alone offers a different perspective to one trying to understand the nuances of US aid to Pakistan. It underlines the insignificance or rather the lack of significance of American aid for Pakistan’s survival.

On the flip side, when the US imposed sanctions against Pakistan after the nuclear test, the Pakistani economy was almost at the verge of collapse, a situation further aggravated by the fact that for fear of the US, no other country came forward to aid Pakistan and bail it out in its hour of distress. The fact is that US assistance to Pakistan also comes in the form of European, Japanese, International Monetary Fund, World Bank and Asian Development Bank support and loans. When seen as a package deal, this converts into a fair amount of money. Pakistan owes much to Washington as it has always been generous in giving legitimacy to military dictators and has strengthened the Army which has ensured the survival of the nation. Washington has always had Islamabad’s back and has ensured the regional status quo.

Aid flows into Pakistan only because Washington wants to garner support for its misadventures in the region. When Pakistan tried to create an informal group - “the friends of Pakistan” - to seek economic assistance, it achieved very limited financial support since the US moved forward to cull the initiative which it perceived as against its stated global policy, a move designed to create a source of funding parallel to US aid.

Hence the support should not be seen only in the form of assistance on humanitarian grounds or diplomatic considerations. It gives America the leverage to get continued support from Pakistan in its so-called global war against terror.

In the last decade or so, China has emerged as a major investor and aid donor to Pakistan. Beijing’s direct investment is not in the public domain, but it has invested heavily into gas, petroleum, mining and ports. These projects generate employment in the local economy and decrease the out flow of dollars. Chinese investment has paralleled that of Washington and international institutional aid. The 2.5 percent annual growth in the Pakistan economy is due to the combined effect of the different aids, remittances and investments.

Pakistan seems to have played its cards well. It has leveraged US compulsions to extract funds while the going was good. Now it has turned to China which also aims at higher stakes in the region and seems willing to pay for it. Chinese presence in Pakistan Occupied Kashmir and the Northern Areas, which may be ceded to the country by Pakistan through an illegal lease for fifty years, is yet another example of Pakistan’s covetous economic brinkmanship.

It is thus evident that India needs to revise its thinking regarding Pakistan’s economic condition and Pakistan’s economic policy.

Islamabad’s economic potential is very good and as long as it follows the basics of economic management, it is unlikely to falter. The cost of the war on terror that Pakistan is paying in terms of manpower losses and economic stagnation will end once America’s Afghan campaign ends. Pakistan may emerge a winner in economic terms from this unholy mess.

Indian strategic thinkers who are eagerly awaiting the fall of Pakistan under the weight of its so-called economic burdens need to study Pakistan with greater depth. That country does not survive on US aid, nor will it die without it.

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