Foreign Aid: is it a blessing or curse?
Foreign aid is a fund which one country or an organization voluntarily transfers to another country, which can give assistance in the form of money, military loans and other resources. The conditions of repayment depend on the mutual relationship and understanding between the developed countries and developing countries, as it should be returned or not, because the first priority of foreign aid is to help the struggling country. The foreign aid can be in the form of loan or accord, it may be either soft loan or hard loan. The divergence between soft loan and hard loan is that if the repayment of the acquire aid requires in foreign currency so it is hard loan, and if it is in home currency then it is soft loan. Foreign aid has been categorized into six types of assistances which one country gives to another country. Some of them are mentioned below:
Bilateral Aid; it is an assistance which one government gives to another government directly. Multilateral Aid; is an assistance which is given by many governments and organizations to reduce poverty in developing countries.
Tied Aid; is a loan that grants by the donor country, but it is edict to the government to spend the money on goods and services produced.
Project Aid; is a loan which is particularly used for the infrastructure projects like, educational academies and hospitals etc.
Military Aid; it is something that requires the government to buy armed forces or down a defense contract directly from the USA.
Voluntary Aid; it is usually a charity, which organizes projects in developing countries which are affected by endemic diseases.
Foreign aid has enormous impact which is affecting the world. It has the ability to improve lives. All the technological advancement and interconnected communication beyond the borders and between the people of different part of the world is incomprehensibly stronger than ever. The world has been divided into almost two parts, where one part is enjoying material advancement and lavish living while the people in other part of the globe are suffering with disconsolate lives with a severe shortage of basic needs like health, food, education developmental infrastructure and etc.
The aim that foreign aid has is to make and provide facilities for those who don’t have access in their countries. Foreign aid is being used to treat diseases like one of those diseases is neglected tropical disease which can cause severe pain and temporary disability in developing countries where people have no such facilities for treatment. So they rely on foreign aid. It has also effected the economic growth. Such countries which economy growth rate is lower than many developing countries are using foreign aid to raise their economy growth rate. But in some countries foreign aid has been accused for not be able to promote economic growth and development in developing countries. The quality of improvement and the projects that has been running under the foreign aid label don’t only depend on the donor, but the acceptor of foreign aid can be accused for the lack of the facilities that has to be given to the needy people.
Foreign aid has been facing some controversial situations, and is on crucial state. On some occasion it has been said that foreign aid that developed countries provides aid to developing and underdeveloped countries to enhance their own security. The most foreign aid is donated by the western world. This foreign aid helps western government to retain power in developing and underdeveloped countries. There are many economic factors which are affected by foreign aid on donor countries. There are some larger donors of foreign aid in the world are Sweden, United States, Norway, United Kingdom, Finland, Switzerland and others.
Economic growth in developing countries, development of basic infrastructure, humanitarian aid, establishment of political ties, market expansion and influence the internal policies are the fundamental reasons for donating foreign aid in other developing or under developing countries. Two of the four Asian tigers that are South Korea and Taiwan used to take aid from the United States. With the valid utilization of foreign aid their economies have become really strong economies. Their industrialization has also grown rapidly.
When less developed countries cannot sustain their population and facing no economic growth, lack of basic infrastructure and need humanitarian aid. So, they turn to the developed countries to for the external assistance. The acceptors of foreign aid receive aid from donor countries for humanitarian service, to tie politics and for developmental. The donor countries or an international organization gives foreign aid for these three main purposes, sometimes military assistance is also given to countries as a foreign aid. It has claimed by donor countries that aid is given to supplement economic development because less developed countries are facing low income and unemployment. By means of basic infrastructure aid is that the transportation, communication, education and health services and heavy industries are provided through foreign aid. Humanitarian aid also is given in order to resolve problem that are sometimes man made or natural disasters. Less developed countries basically are receiving foreign aid to improve their conditions. Countries like Egypt, Afghanistan, Vietnam, Kenya, Tanzania, Pakistan, Ghana and many others in the world are receiving foreign aid.
The potential that foreign aid has is to promote the economic development. The contribution of foreign aid helps recipient countries to increase their economic growth, which can be helpful to reduce the poverty. But, it has also been on a crucial stage. The question is that, if both the donor and recipient countries do have any effect on the economic growth or increasing their poverty level?
For many years the relationship between foreign aid and economics has been seen with intense attention but the outcomes are mixed. This is why; many countries in the contemporary world are suffering from lack of resource problems. Many of these countries are facing the battle of debt servicing, which is also causing the dependency on the financial aid inflow and inflation in countries. People in African countries are still living in poverty even after more than thirty five years of development assistance. African countries such as The Central African Republic, Malawi, Mali, Niger, Sierra Leone and Togo are highly aid dependent. For many years the relationship between foreign aid and economics has been seen with intense attention but the outcomes are mixed.
Less developed countries struggle to create different social policies for the betterment, but somehow it diminishes the effectiveness. The failure of social policies can cause weak administration and political institutions and limitation of finance. After that the struggle of reducing poverty to an extent and social inequalities are then cannot be done. In order to furnish these aspects less developed countries are taking foreign loans to make the social policies more effective. These countries usually need foreign aid to meet its gaps, first its public expenditure and other are the technical assistance and building of institutions. By social policy, it means to enhance human welfare, healthcare, education, social protection, water & sanitation and others. Foreign aid also helps government to establish infrastructure and when development of these policies started in any country then it enable many opportunities of employment for the people of that country. Social development is as much important as economic development for the country.
There are some advantages of foreign aid. Foreign aid can save lives mostly during man made or natural disasters, then right after the disaster, it can promote livelihood by rebuilding houses for the people who already become homeless. It also provide to food aid, shelter and medical facilities to the victims. It is also an aim of foreign aid to provide clean water and sanitation facilities to reduce the risk of contracting infections and diseases. Free of cost medicines can also be provided in less developed countries, through foreign aid free medical and health care services where they are needed. The aid for agriculture is also supplied to farmers, which increases the quality of production of food which benefits them. For technology collaboration foreign aid is used by recipient, this project aid is use through modern machines, which enable the production of good quality goods on larger scale which benefit the consumers. There are some less developed countries those cannot utilize or maximize their resources for obvious reason that they don’t have much sources to do that so but with foreign aid it is possible to maximize those natural or unnatural resources and make them able to be used in a meaningful way.
There are also certain disadvantages of foreign aid also where donor countries enjoy more benefit and recipient countries still suffer with their circumstances. When foreign aid fails and result comes out it has been normally seen that less developed countries have already lose their independency. Mostly the economics of those countries become really weak and greatly indebted. In this way donor countries save a lot of money where people of poor countries got engage in debt servicing which is too much out of their poverty. The risk of corruption is also likely to be having, and there are possibilities that the aid do not reach to the needy people for appropriate reasons, but instead it goes into the wrong hand of some official those who are using it for their own sake. This debt servicing became a great cause of increased price of commodities and also cause inflation which make deprived poor people more deprived and miserable. Donor country may also pressure or force recipient country economically and politically to return them their loan. These are some of the disadvantages of foreign aid that is making less developed countries to face more hardship still after taking loan to make their countries conditions better.
On one hand where foreign aid promotes democracy on a global level, on the other hand foreign aid sometimes is engaged in different illegal activities. Terrorism, illegal immigration and trade of people and goods and political corruption are also being done by aid which helps donor countries to have the upper hand on poor countries. It is also claimed that foreign is one of the reasons of increasing illegal immigration. Other than immigration, foreign aid is also used in supporting illegal activities, which make poor countries poorer and weaker in front of developed countries on a global level. It is clear how these illegal activities affect the economic growth and political conditions of both countries. It is also claimed that terrorist organizations have often received foreign aid from donor countries. The funding of a part of foreign aid is given to terrorist activities, mostly for the distribution of weapons among them. Aid which is given to third world countries in order to make their economic, political and social conditions better are also being misused and often engaged in illegal activities which tends to make the conditions of less developed countries even worse and poorer. This funding is affecting political conditions and the economic growth of both donor and recipient countries. For those countries which are struggling even after receiving foreign are in poorer state and somehow foreign aid is like a curse on them.
When it comes to relationship of different nations, globalization cannot be neglected. Globalization is a multidimensional progress which affects the whole world. As, globalization is a process which is usually presents by three aspects which are social, economic and political. So globalization has some impact on foreign aid and vice versa. As a result, if globalization increases economic growth, the trade will raise the income level of countries. The enormous use of the internet and tourism has changed many policies. Social variables are also affected by the globalization process such as education. Now educated workers migrated from developing countries to developed countries where they can find better wages according to their education, the more there are migration opportunities the more it has a negative effect on developing countries. Though, internet widely has a positive effect on education. Foreign aid and globalization, both are working to provide better healthcare to the people all around the world. The urban areas in developing countries are increasingly developing to promote a better lifestyle than rural areas, but the consequences are still being faced by many who are living in urban slum areas, access to hygienic thing is the most common problem which spreads diseases which are threatening lives. The transmissions of medical treatments are now faster through the progression of globalization. But somehow cultural variables are also getting affected by globalization. The nutrition intake has changed the consumption of good and not so good food is also affecting the health of people and increase the rate of cardiovascular and other diseases. Therefore, as with foreign aid and globalization have both positive and negative effects.
It’s been a long debate since the start that if foreign aid is really helping other poor countries, those who are struggling to provide basic needs to their nation. When these less developed countries turn to first world countries to seek assistance for the betterment for the nation, so these developed countries fund them, but somehow in many areas of world foreign aid has been failed to restore lives and other facilities. There are some dark sides of the aid which cause some recipient countries to suffer often. According to the reports by the Global Partnership for Effective Development Cooperation is that only the 51% of aid is being used in development of recipient countries. One of the reasons of failure of aid is that donor countries give money directly to the poor countries which produce dependency. When the dependency on aid increases then the recipient country loses its control over its own country. By giving money direct to the government of poor states can enhance the corruption in political leaders, which is why money and fund didn’t reach to the rightful owners that are needy people. This is one major reason of failure of aid. This is why even trillion of dollars has kind of wasted and couldn’t establish very basic facilities. When aid is not being used in meaningful manner, then poor people of poor countries got engaged in debt servicing in order to repay the investment which has made by donor countries.
There are some countries which receive foreign aid from more than one country and organizations. Pakistan is one of those countries. The government plays an essential role in foreign aid. Good governance helps to promote economic growth and enable the country to become better and prosperous. Whereas, Pakistan is getting aid, but still it has become a victim of bad quality of governance. Foreign aid is one of the major sources of income of Pakistan, and the cutting of aid from some developed countries which has affected the country. There are some elements that are the causes of failure of foreign aid and good quality of governance in the country which prevent the desire to maintain to be developed. In the last 5 year, Pakistan has merely received $22.85 billion from its all donors. The effectiveness of foreign aid in Pakistan is contentious, because after receiving assistance from the US and other donor countries, nation of Pakistan is still struggling. Although, the effectiveness of foreign aid is disputable, because there are many countries like South Korea, Turkey, Taiwan, Indonesia and Vietnam. Where, foreign aid has played considerable and positive roles in the development of the country. But there are also several countries, including Pakistan, People Republic of Congo, Kenya and Somalia and others where foreign aid has failed in the development of these countries.
The one reason of failure of foreign aid in Pakistan is corruption, which prevents aid to reach to the needy people. The classes which are playing their roles in maintaining and spreading corruption are more likely to be the elite classes which include merely leaders, which are being chosen by the nation itself in the name of democracy. The condition of the country is not getting better after receiving aid from other first world countries, and people are drawn into debt servicing, which has raised the price of living and fallen the standard of living.
Pakistan has received aid from seven leading economic powers that are United States, United Kingdom, Germany, Japan, Italy, Canada and France. These powers are also known as G7. Pakistan has received foreign aid for education, but it is not enough for basic education, still the literacy rate is lower than illiteracy rate. Every 47 out of 1000 newly born babies die before completing their first month after they born, and according to the UN latest report Pakistan is one of the most dangerous place to be born. Not just this, but 9 out 20 children are stunted. Though, donor countries have increased the food aid. Pakistan’s aid for healthcare has been cut by donor countries. The spending on health care is resulting in more sick people, which are almost one rupee out of 100 rupees from Gross Domestic Product. That is why foreign is not proving to be much beneficial for Pakistan and people of Pakistan.
Effectiveness of foreign aid is increasingly a moot point on the subject of economic development. Firstly, because it has been claimed that foreign aid assistance is ineffective and weakened poor countries gradually. Secondly, it doesn’t allow the recipient country to participate in a global economy of the world much. Lastly, it creates dependency, encourage corruption and currency devaluation. Some economists believe that some poor countries need to plan in order to distribute their resources in an effective way. Foreign aid can also be effective in reducing poverty and boost economic development. Rich countries influence poor countries when they give aid to them and this is how they clutch the power of their economics, social and political in their hands.
In conclusion, it has to be said that foreign aid that are being given to less developed countries are not always sufficient and reliable, it somehow makes the conditions of poor countries not only useless but harmful. The perspective of donor and recipient are different. In donor’s perspective, it is crucial, but it cannot harm the donor and in recipient perspective sometimes it can satisfy their necessities and sometimes for those who proclaim themselves as leaders can please their own needs regardless their nation. So, foreign aid sometimes can be a blessing, but most of the time it is a curse which make receiver’s conditions even worse.