Foreign aid to countries was initiated after the World War II with a twofold objective. It was primarily to reduce poverty and enhance growth and secondarily to further strategic and political interests of the donor nations.

Foreign aid has had a varied amount of success in a few countries and an absolute failure in others. Worldwide experience shows that multilateral and bilateral aid has been helpful in stimulating growth and alleviating poverty in countries having well defined socio-economic policy frameworks and supportive professional government institutions.

There have been three models of growth since the depression of 1930s. It was at that time thought that the markets have pervasive failures and the states were the answer to all ills. This view later changed that states were unable to deliver due to inherent flaws and markets provided the only hope for growth. The recent balancing act recognizes inherent failures in both sectors short of labelling them as complete failures.

Governments are needed to focus on areas where a change may not be possible without their influence, but they must have the capacity to deliver to have any kind of impact. Developmental economists now point out that stable macro economics, trade liberalization and growth oriented policies are workable if they are complemented by the provision of important public services like health, education, infrastructure of roads, ports, water resources, quick and impartial judicial system, effective policing system, strong legal framework, judicious taxation and a professional government. Strong and stable policy planning, professional institutions and competitive public service are thus considered prerequisites for growth.

In the 55 years of its existence Pakistan has had to contend with a difficult situation of hostile neighbourhood, prolonged wars on its borders, external pressures and a derailed democratic system. Nevertheless, there has been some meaningful progress, which is mainly as a part of an evolutionary process and cannot be attributed to sound policies or strong institutions.

Pakistan’s growth strategy lacked focus and resources for development of physical and human capital because of the emphasis on national security issues of all governments. Pakistan’s social indicators have therefore lagged behind countries with similar levels of GDP, in spite of its high GDP growth in 1980s. The situation worsened during the 90s as economic growth plunged and public sector spending was further cut resulting in higher unemployment and a rise in poverty rate to an alarming level of 33 per cent of the population. Low level of financial commitment to social sectors and infrastructure development was also aggravated by the lack of proper planning, inappropriate prioritization and failure of the institutions to deliver.

The last three years have seen a more stable macroeconomic performance of the economy, fiscal deficit has been curtailed, inflation (excluding the prices of utilities and oil) is low, exports are stable, balance of payments deficit has declined and foreign exchange reserves and remittances are up. GDP growth rates have however continued to remain low as investment climate and confidence did not improve satisfactorily, agricultural sector was hit by a drought. The GDP growth rate for the current fiscal year might show improvement because of improved agri outputs and slightly better capacity utilization of the existing industry.

The Soviet invasion of Afghanistan and the events of 9/11 made Pakistan a strong ally of the major Western powers. Pakistan was favourably treated by donor countries and the agencies despite the fact that on both occasions it was under military rule and its track record of using aid to its advantage was poor.

Pakistan has been able to get its multilateral and bilateral debt rescheduled and has moved on to concessional loans with the preparation of the Interim Poverty Reduction Strategy Paper (IPRSP). IPRSP is a document now being mandated by the donors to be prepared by recipient countries under their guidelines for ensuring a more tightened role of the agencies in monitoring of desired outcomes. The rescheduling and concessional loans and a current account surplus in the budget have created room for increased public sector spending. Some of the bilateral loans have also been converted to grants to be spent on social sectors. Empirical evidence in terms of growing poverty, per capita gross national income (GNI) of US $ 440 with widening regional income disparities, literacy rate at 40 per cent, high gender gaps in literacy and health sectors, maternal mortality remaining high at 340 per 100,000 live births and 55 per cent of the population living without potable drinking water and sanitation facilities, shows that neither the high growth rates of the 1980s nor the borrowed public sector spending in the 90s had worked on its own in terms of pro poor or sustained development strategy.

The input cost to industry and agricultural sector and cost of living has increased manifold as the state owned enterprises have continued to make losses to the tune of 100 billion rupees yearly over the last decade and provide a poor level of service. The quality of primary, secondary and tertiary level educational institutions and the health delivery system is in a quandary primarily because of ill-trained manpower, inadequate salary structures and deficient facilities besides a host of other factors.

The government has tried to bring about a change by strategic interference, adhoc changes and deployment of the armed forces in several organizations in the last three years. The reforms have not borne fruit because of less than modest implementation of strategies despite the tall rhetoric about the new measures. The state owned organizations lack appropriate internal, financial and performance management systems and adequate public procurement regime. Public external audit and evaluation functions are also ineffective. Above all the delineation of the roles of the private and public sector is still murky in many areas resulting in confusion and frequent reversal of policies.

Targeted assistance to specific activities in health or education sector has also not had the desired effect because of inept policy and ineffective institutional environment. For example every rupee of aid targeted for educational purposes raises its spending by 10 paisas only. Thus targeting money to special activities has little impact on these sectors whereas the public apathy towards the state delivery systems whether in utilities sector, health institutions, educational or judicial system continues to mount.

In Pakistan for people to see a meaningful change the focus must shift from disbursement of money to narrow evaluation of physical implementation of projects and especially to those projects which create high impact change through over all encompassing policies. In this pursuit the role of reformers, change agents, academia, industry and government sector must converge by long haul efforts of ongoing result oriented research and development activities. In Pakistan the emerging model for growth includes the effective roles of the three stakeholders viz. the markets, the government and the civil society. The government must ensure accountability and transparency and a responsive and performance oriented governance, the markets must develop self-regulation and efficiency and the community must actively participate and monitor both the markets and the government.

The people must buy the reform agenda, believe in it and own it. The light at the end of the tunnel for a better future has to be visible to a majority if not to everyone.