HISTORICALLY Pakistan has seen large volumes of foreign development aid. The Brookings Institution in Washington D.C. reports that in 2007 alone we received $2.2bn in official development assistance making us the world's sixth largest recipient.

Yet we continue to see energy and water crises, a sub-par education and health system and considerable deficiency in public safety nets. The question then is: where does the money go? both

It would be easy to pin the blame on a corrupt system. There is no doubt that the lack of accountability or transparency on the ground means that many development projects do not reach fruition. The issue though lies at the local and agency levels.

Examining the source of development aid in a given year, it is typical to find provision from several foreign governments along with various international non-governmental institutions. For example, between 2004 and 2009 Pakistan received grant assistance from as many as 21 countries and seven international agencies in a fiscal year, with the largest bilateral players being the US, the UK, China and Japan. This plethora of aid players creates inefficiencies due to duplication at the donor level while leaving the government with the overwhelming task of coordinating the many aid activities.

Moreover, it translates into disjointed developmental work on the ground as well as erratic inflow of funds from one year to the next. This results in pockets of exceptional work when there is real need for a large-scale overhaul of public provision. A significant proportion of the aid, up to 39 per cent in some years, is in the form of loans that need to be repaid. The World Bank and IMF have been a major source of repayable development-related loans to Pakistan. While the funds provided by these agencies have been crucial for keeping our economy afloat, they have also come with a hefty price tag.

Aside from adding to our mounting debt burden, IMF and World Bank loans have typically been accompanied by extensive structural adjustments. Strictly speaking, the adjustments are policy changes that need to be implemented in order to get new loans from these agencies and target fiscal imbalances. However, in practice Structural Adjustment Programmes have usually been generic free-market policies that are applied without considering the local institutional context.

These programmes include internal and external changes in the form of privatisation, deregulation and reduced trade barriers. In theory such measures make sound economic sense since they are meant to increase efficiency as well as competitiveness in the global market. Particularly in the Pakistani case the structural and stabilisation adjustments of the 1988-91, 1993-96 and 1997-2000 periods saw policies that reduced subsidies and monetary spending and increased the sales tax to name a few. Economic Survey

The reduction in development subsidies caused a hike in the price of fertilisers, pesticides and other agricultural inputs. Although the government instituted an increase in the price of agricultural output in the same time frame, the net benefits to the small farmer were minimal at best. At the same time, an increase in the general sales tax hit the poor exceptionally hard while contractionary monetary policies reduced the availability of credit. It comes as no surprise then that the shows a sharp increase in inequality for the same time period.

Since 2002 the IMF and the World Bank have replaced Structural Adjustment Programmes with Poverty Reduction Strategy Papers. These aim to increase the borrowing country's involvement thereby transferring the burden of ownership to them. However, these strategy papers have been alarmingly similar to the original structural programmes. Moreover, the Bank and the IMF remain overly involved in the policymaking process thus perpetuating the cycle of dependency.

The matter of ownership is fundamental to the failure of development aid in Pakistan. While the works being sponsored by bilateral and multilateral agencies have been integral in getting such efforts as those related to women's empowerment and disaster management off the ground, these projects are sustainable only so far as their funding agencies remain interested. If we hope to see systematic change then local players must take centre stage in Pakistan's developmental work.

The problem is that throughout our history the largest player, the government, has shown a regrettable lack of foresight with regard to the importance of a well-fed, healthy and literate population. Rather, the defence budget and interest payments on our loans have taken precedence.

While lobby groups such as those for the sugarcane industry have been able to prevent reductions in subsidies for their product, the same has not held true for those interested in increasing or even maintaining the development budget. This is largely due to the impossibility of coordinating the millions of concerned citizens who do not want to see spending on education and health curtailed. Thus, we find that Pakistan's development budget has seen continual cuts with the 2010-11 budget allocation for education at a mere two per cent of GDP.

Perhaps the most disturbing aspect of aid provision to Pakistan is the link between the region's geopolitical conditions and the flow of grants.

During the Soviet war in Afghanistan we witnessed a steady stream of aid funds. The end of the war resulted in a steady decline of grants with a minimum being achieved in 1998, the year of the nuclear tests. Since 2001, however, there has been a systematic increase. The link between aid and regional military activity has had a profound and adverse effect on the planning and spending practices of the government. n

Pakistan's strategic geopolitical location has fostered a culture of dependence on foreign aid. Today the typical mentality at the federal level is that the international community cannot afford to allow our economy to sink as that would severely compromise its strategy for the region. Thus, rather than developing and following through on a long-term plan for investment in human capital, infrastructure and industry and hence sustainable economic growth, we wait for a bailout and rely on short-gap measures to carry us from one crisis to the next.

The writer is pursuing a PhD in development economics at the Ohio State University.

hadiamajid@gmail.com