Pakistan’s foreign aid paradox

Foreign aid keeps many developing nations, such as Pakistan, afloat. It funds essential projects in health, education and infrastructure, pillars meant to drive growth and stability.

However, despite billions of dollars and a plethora of projects over the decades, the results remain underwhelming, leading us to question where things went wrong and how to break free from this cycle of dependency

According to the Pakistan Institute of Development Economics (PIDE) latest report on ‘Pakistan’s Foreign Aid Inflows and its Outflows’ since 1951, Pakistan has secured over $200 billion in foreign aid commitments, though only $155 billion to $170 billion has actually reached its coffers. Yet, all this aid seemed to have had little effect on quality of life, economic growth or related socio-economic indicators.

For example, despite decades of inflows, Pakistan’s Human Development Indices (HDI) have barely improved. The problem is not just how much aid the country gets, it’s how that aid is spent. Are we doing enough to make these funds matter?

Managing aid is not straightforward; it is messy and often riddled with inefficiencies. Pakistan’s Economic Affairs Division (EAD), along with the Finance Division, oversees this process, but the cracks in the system are evident. Reports on where aid money goes are inconsistent, often contradicting each other. Agreements with donors are shrouded in secrecy, which only fuels suspicions and misuse.

Meanwhile, the stakes are massive. Pakistan’s external debt has climbed to $134 billion, with repayment costs choking federal income. Foreign aid forms a big chunk of the Public Sector Development Program (PSDP), but what benefits do we see accruing to the economy? On average, in the last decade, 1,268 aid-funded projects have been running all over the country – dependent upon aid inflows and run by both the public and the private sector. But the majority of these are either incomplete or offer negligible benefits. And this is not just a waste of money, but akin to a betrayal of public trust.

There are other issues also that usually fly under the radar, like tied aid. Roughly 20-25 per cent of the aid Pakistan receives comes with strings attached. Spend it on goods and services from the donor country, they say. This inflates costs, limits flexibility and redirects focus away from what Pakistan actually needs. For example, as highlighted by PIDE, $12 billion in aid was allocated to the health and education sectors between 2004 and 2020 – and yet the country’s HDI barely budged.

Consultants complicate things further. A significant share of aid is funnelled into consultancy services, with donor nations often handpicking consultants who align with their interests. These consultants may prioritise reports and studies over actual progress.

Monitoring so many projects is next to impossible. Spreading resources thin leads to delays, bloated costs and half-finished projects. Worse, these failures damage public confidence, not just in the government, but also in donor agencies. When aid becomes synonymous with mismanagement, it triggers doubt and undermines the value of future assistance. Can you, then, blame people for questioning the system?

Every missed target piles onto Pakistan’s debt, tightening the cycle of dependency. And the fallout does not stop there. Ineffectively spent aid widens inequalities, eroding any semblance of unity between the haves and the have-nots. At some point, this disillusionment becomes dangerous.

Fixing the issue is not rocket science, but it does demand commitment. Stronger regulations are critical, and transparency is non-negotiable. Why not make all donor agreements public? Why can’t there be detailed, real-time reporting on fund usage? Technology could bridge these gaps, and data analytics and blockchain could track aid flows, reduce leakages and hold people accountable.

Foreign aid is supposed to uplift, not deepen divides or fuel mistrust. If Pakistan truly wants to break free from this cycle, the entire system needs a reboot – one that prioritises efficiency, fairness and long-term growth over quick fixes and flashy numbers. But the question is: are we willing to do what it takes? Or will we keep spinning in circles, watching aid trickle away without leaving a lasting impact?