Foreign Aid Since independence Pakistan has had to depend on foreign assistance in its development efforts and to balance

its international debt payments. In 1960 the World Bank organized the Aid-to-Pakistan Consortium to facilitate coordination among the major providers of international assistance. The consortium held 92 percent of Pakistan's outstanding disbursed debt at the end of June 1991. The consortium's members include the United States, Canada, Japan, Britain, Germany, France, and international organizations such as the World Bank and the Asian Development Bank (ADB). The World Bank accounted for 26 percent of the outstanding debt, and the ADB, which was the largest lender in the early 1990s, accounted for 15 percent. Most nonconsortium funding comes from Saudi Arabia and other oil-producing Middle Eastern countries. Most aid is in the form of loans, although the proportion of grants increased from around 12 percent in the late 1970s to around 25 percent in the 1980s, mainly because of food aid and other funds directed toward Afghan refugees. With the decline in this aid after 1988, the proportion of grants decreased to 16 percent in FY 1992. The United States has been a major provider of aid since independence and was the largest donor in the 1980s. All United States military aid and all new civilian commitments, however, ended in October 1990 after the United States Congress failed to receive certification that Pakistan was not developing a nuclear bomb. As of early 1994, United States aid had not resumed, but Agency for International Development projects already under way in October 1990 continued to receive funds.
Between 1950 and 2000, donor assistance to Pakistan has been of the order of $60 billion. Yet, the countrys social indicators are languishing at the bottom end of the list of countries. The health system is sick; the infant mortality rate per 1000 live births in 2007 was 80 compared to 12 in Sri Lanka. Education is in shambles with half the population still illiterate, an increasing number having to turn to madrassas, and the rest receiving indoctrination instead of an education. No wonder, religious and social intolerance is rising rapidly. Hopes that new aid would be used better are misplaced without explaining what has changed that would lead to more effective utilization. The poor use is often blamed on rampant corruption and weak governance. These have deteriorated over the years, not improved. Even otherwise, these are lame explanations that reflect poorly on the donors. These constraints are well-known before the assistance is programmed and should be built into the design of aid-assisted projects. The fact that they are not suggests that either the donors are really nave or they have a hidden agenda. Unfortunately, the average citizen in Pakistan has by now become convinced of the latter. The remedy is not to stop all development assistance to Pakistan but to design it in a way that good outcomes become possible. The Pakistani situation seems immensely complex from afar causing well-intentioned people to think they could never understand its workings. There is, however, a simple way to understand why outcomes of development assistance are so poor in Pakistan. A useful analogy is with the subprime mortgage crisis in the US. It is possible at times for the interests of various players to be aligned in such a way that no

one has an incentive to call a halt to the madness at the same time as the regulatory mechanism fails to do its job. Unlike the US, public response mechanisms are so weak in Pakistan that even failures of huge magnitude go unquestioned; people just adapt to their fate and no one acts on their behalf to determine what happened to the funds received in the name of the people of Pakistan. Let us look at the set of incentives in place. US governments are interested in moving money to Pakistan when they believe their strategic interests are at stake, Pakistani governments are more than happy to receive it, the US Agency for International Development is rewarded for disbursing funds quickly through the pipeline, and private US contractors have an easy source of income. Pakistani NGOs that are supposed to watch out for the citizens are unable to resist the lure of big money; most of them end up as subcontractors on the major projects. Despite the lack of results on the ground, not one of these players has shown an interest in stopping to take a second look. All of them are beneficiaries and evaluators at the same time. No wonder they do not wish to rock the boat or alter the status quo. The only parties who gain nothing from this cycling of money are unable to exert any meaningful influence on the process or evaluate it in any way. The US taxpayer is not well served by the Government Accountability Office whose primary concern seems only to ensure that the disbursement of funds follows proper procedures. And the Pakistani citizen is not consulted at all; it would be hard to find one who knows what is being done in his or her name. There is not even an easily understood term for Millennium Development Goals in the local languages. For aid to become effective a number of design and process changes are needed. First, nationwide programs need to be replaced by geographically delimited projects whose deliverables are clearly specified. Second, different donors should be placed in a competitive framework executing similar projects in different locations. Third, beneficiary populations have to be involved and represented by citizens committees that are provided information about budgets and key milestones. Fourth, media representatives need to become engaged to keep a scorecard and to regularly disseminate information about the progress so that corrective actions can be taken in time. Some of these elements, consciously or by happenstance, were part of the design of the immensely successful Indian Institutes of Technology that have contributed so much talent to Silicon Valley and are now fuelling the software boom in India. In the 1950s different donors were assigned the tasks of funding, implementing and nurturing each of the various IITs and the resultant competition for prestige contributed greatly to the success of the outcomes. Intelligent design and credible accountability are the keys to effective utilization of aid to Pakistan. Without these US taxpayer money would continue to be poured down a dark and bottomless hole furthering even more corruption, cynicism and hostility in Pakistan.

Chinese President Hu Jintao, making the first visit to Pakistan by a Chinese president in a decade, promised to bolster his country's ties with its old ally to a new level. Following are some of the most important events in relations between the two neighbours. 1950 - Pakistan becomes third non-communist country, and first Muslim one, to recognize China. 1951 - Beijing and at the time Karachi established diplomatic relations between themselves in the month of May.

1970 - Pakistan helps US make contacts with China that result in visit to China by then US National Security Adviser Henry Kissinger in 1971. 1978 - Karakoram Highway linking mountainous Northern Pakistan with Western China officially opens. 1980s - China and US supply help through Pakistan to Afghan guerrillas fighting Soviet occupational forces. 1986 - China and Pakistan reach comprehensive nuclear Co-operation Agreement. 1996 - Chinese President Jiang Zemin pays state visit to Pakistan. 1999 - A 300-megawatt nuclear power plant, built with Chinese help in Punjab province, is completed. China is helping to build a second 300-megawatt nuclear plant due to be finished by 2010. 2001 - A joint-ventured Chinese-Pakistani tank, the MBT-2000 (Al-Khalid) MBT, comes into full production. 2002 - Chinese Vice Premier Wu Bangguo attends ground-breaking ceremony for Pakistan's Gwadar deep-sea port. China provides $198 million for $248 million joint project. 2003 - Pakistan and China signed a $110 million contract for the construction of a housing project on Multan Road in Lahore[11] 2007 - Sino- became Pakistan's biggest arms supplier with no strings attached, a true "strategic partnership". 2007 - Sino-Pakistani joint-ventured multirole fighter aircraft - JF-17 Thunder (FC-1 Fierce Dragon) is formally rolled out. 2008, Pakistan starts mass production of the aircraft. 2008 - China warns US of war against Pakistan, during which former president, Pervez Musharraf, visits China, Musharraf raised issues of US attacks inside Pakistan. Pakistan's foreign office (the first foreign issue to speak of Tibet) speaks for more than three times per month on the Tibet issue, calling for the world to stop opposing China and the Olympic Games. Pakistan welcomes China's Olympic Torch warmly, and did not protest against Tibet when the torch arrived. In fact, when the torch passed through the rural hinterland of the capital Islamabad, local villagers showered rose petals upon the procession. As a result, China thanked Pakistan for its continuous support. 2008 During the 2008 Sichuan Earthquake, Pakistan almost emptied its national storage of tents to support China. 2008 China and Pakistan sign an FTA (free trade agreement). It is the first such agreement signed by the two countries. As a direct result China has opened new industries in Pakistan and Pakistan has been given free trade zones in China. 2008 China vows to help Pakistan in civil nuclear technology by building and helping in the Khusab Nuclear Programme providing technology to Pakistan for better maintenance of civil nuclear plants. 2008 Pakistan and China to build first ever train route through the Karakoram Highway, ultimately linking China's rail route-net to Gwadar Port. 2008 The F-22P frigate, comes into service with the Pakistani Navy. The first frigate was inducted in Pakistani Navy in July 2009 and last one is expected to be in 2013.[12]

2009 Pakistani intelligence agencies helped the Chinese government of catching several suspected Uyghur terrorists seeking haven in Pakistan and planning to launch illegal operations. 2009 Growing military ties between China and Pakistan are a serious concern to India, Defense Minister A.K. Antony said on Friday, in the latest display of a prickly rivalry between New Delhi and its neighbors. India worries about China's rising influence in South Asia and the Indian Ocean region, a neighborhood New Delhi has traditionally considered as its sphere of influence. 2010 Pakistan and China have a joint military drill for anti terrorism. China donates $260 million (USD) to flood hit Pakistan and further sends 4 military rescue helicopters to Pakistan to assist in rescue operations, it was the first time China has ever sent such rescue operations overseas. Sino-Pak relations proved to be "All-Weathered-Friends"
Over the years, the U.S. has unloaded massive amounts of aid to Pakistan, including $7.5 billion more earlier this month. But the money doesnt always wind up where its supposed to
It was with the best of intentions that the U.S. funneled nearly $5.3 billion to Pakistan during the Soviet occupation of Afghanistan in the 1980s. After all, that money helped strike down a Cold War adversary. But there were unintended consequences toonamely, the Taliban. Since 9/11, the U.S. has turned on the spigot again, sending more than $15 billion in assistance to Pakistan. President Barack Obama just approved another $7.5 billion this month, which triples aid while committing to another five years of funding. It also bolsters development efforts, which, according to bill coauthor Sen. John Kerry, will build a relationship with the people [of Pakistan] to show that what we want is a relationship that meets their interests and needs. But how effective will this round of money be? Officials at the U.S. Embassy in Islamabad have alleged that Pakistan misspent some 70 percent of the U.S. funds that paid the Pakistani military to run missions in the unwieldy provinces along the Afghan border. U.S. officials accuse Pakistan of running a double game with the money, keeping the Taliban at bay just enough to persuade American benefactors to keep their wallets open, thereby ensuring a lifeline for the countrys mangled economy. All of which raises the question: will any amount of money produce results? A big part of that answer lies in determining how much bang the United States has gotten for its buck so farwhether or not some of the money was siphoned off along the way to fund Army generals new houses or Taliban elements. Heres an accounting of aid sent over from the United States to Pakistan in recent decades, divided into eras based on the ebbs and flows of assistance. (Figures are in historical dollars.) 1950-1964: As the Cold War heated up, a 1954 security agreement prompted the United States to provide nearly $2.5 billion in economic aid and $700 million in military aid to Pakistan. 1965-1979: With the Indo-Pakistani hostilities in the late 1960s, the United States retreated. Between 1965 and 1971, the U.S. sent only $26 million in military aid, which was cut back even further to $2.9 million through the end of the decade. Meanwhile, economic aid kept flowing, totaling $2.55 billion over the 15 years. Everything came to a halt in 1979, however, when the Carter administration cut off all but food aid after discovering a uranium-enrichment facility in Pakistan. Pakistani leader Gen. Mohammad Zia ul-Haq refused $400 million, split for economic and military aid from President Jimmy Carter, calling it peanuts. The following year, he was rewarded with a much more attractive offer. 1979-1990: The Soviet invasion of Afghanistan changed everything. Pakistans ISI security apparatus became the primary means of funneling covert U.S. assistance to anti-Soviet forces in Afghanistan. From 1980 to 1990, the United States ramped up its contributions for both development and military purposes, sending more than $5 billion over the course of the decade. 1991-2000: But even while Pakistan was serving a strategic Cold War purpose, concerns persisted about the countrys nuclear ambitions. That gave President George H.W. Bush an easy out from the massive funding commitments in 1990, after the fall of the Soviet Union. Aid over the next decade withered to

$429 million in economic assistance and $5.2 million in military assistance, a drop-off Pakistanis still cite bitterly, accusing the United States of leaving them high and dry during the decade. 2001-2009: Since 9/11, the United States has once again bolstered its funding commitments, sending nearly $9 billion in military assistance both to aid and reimburse Pakistan for its operations in the unwieldy border regions with Afghanistan. Another $3.6 billion has funded economic and diplomatic initiatives. But U.S. officials and journalists accounts have raised concerns that such funds are not being used as intended, and not just because of the typical concerns about corruption. Documented military and civilian government deals with Taliban elements, like a 2004 agreement with Waziri militant leader Nek Mohammed, have confirmed that money intended to fight the Taliban is, in many cases, being used instead to pay them off. (Islamabad is currently battling Taliban fighters in Waziristan.) When the deals fall through, as rapidly shifting alliances in Pakistans tribal regions often do, that money ultimately ends up funding the insurgency. U.S. officials have expressed particular concerns about the Pakistani governments links to the Haqqani network in North Waziristan, which reportedly has ties to Al Qaeda. At the same time, former president Pervez Musharraf has recently admitted to using U.S. military funding to strengthen defenses against India. 2010: A new five-year, $7.5 billion assistance package was passed by Congress in September and signed by President Obama in October, withstipulations explicitly prohibiting funds from being used for nuclear proliferation, to support terrorist groups, or to pay for attacks in neighboring countries. It also puts a new emphasis on the bottom line, reserving the right to cut off aid if Pakistan fails to crack down on militants. Those restrictions have opened a riftbetween the military and the civilian government in Pakistan, which maintain an uneasy relationship following nearly a decade of military rule under Musharraf. Military leaders worry they are being sidelined by the increased U.S. emphasis on development and accountability, claiming the bill threatens Pakistans sovereignty. But supporters of the bill say the restrictions are no more stringent than previous ones, and accuse Pakistani military leaders of manufacturing a crisis to undermine the civilian government.

Conclusion

The current study shows both positive as well as the negative effects of foreign aid on the economic development. Foreign aid, on positive side, has helped in boosting the GDP Growth through structural transformation of the economy, laid foundations of the industrial and agricultural sectors, provided technical assistance, policy advice and modern technology, assisted in overcoming the budget deficits and the BOP deficits and has also funded the projects for the social sector development projects. As the regression analysis of the GDP and the ODA confirms the positive affect of Official Development Assistance (ODA) on the GDP. GDP increases at the decreasing rate, as the flow of foreign capital increases. Thus, the overall impact of the aid on the economic development is positive. Impact of Foreign Aid on Economic Development in Pakistan (1960-2002) But on the negative side, aid seemed to have substituted for domestic savings, increase debt burden. As the various debt indicators depicts that Pakistan s debt burden increased over time and the country may caught in severe debt servicing problem if the macroeconomic management, foreign trade and domestic saving policies are not designed and implemented appropriately. The policies are also important in the effectiveness of foreign aid, as the aid has a more positive impact on growth in with good fiscal, monetary, and trade policies. In the presence of poor policies, on the other hand, aid has no positive effect on growth. Accordingly, there is a need of not only good policies but also the implementation of these policies as well as the proper monitoring of the aidutilizing projects is necessary in order to avoid the misutilization and the mismanagement of the foreign capital resources. Consequently we can say, the aid may be helpful in boosting economic

growth only under the presence of appropriate monetary, fiscal and the trade policies.