It is a long held economic belief that higher level of public debt breeds risk for a country’s economic and political freedom. Political freedom is compromised when the government borrows money from various International Financial Institutions (IFIs) and donor countries, while the economic freedom is jeopardized when the debt is serviced through printing of money, heavy taxation or further debts.

Pakistan’s public debt plight is becoming increasingly unsustainable. In actuality, the public debt to GDP ratio stands at 66.3 percent as of 2018, with the stock of total public debt rising by Rs. 1.4 trillion during the first half of the current fiscal year.  Presently, the debt servicing to revenue stands at 41 percent – exceeding the government established sustainability criterion of 30 percent.

Although debt can be conducive to growth and development, it can be detrimental if not put to optimal use – as has been the case in Pakistan. For most part, twin deficits have been responsible for the mounting debt burden. In particular, the burgeoning budget deficit has been the underlying factor in excessive government borrowings. The budget deficit and consequently the public debt has been increasing owing to plethora of factors such as inefficiencies of State-owned Enterprises, excessive administrative costs (current expenditures), poorly targeted infrastructure and welfare spending etc.

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During the last decade, Pakistan’s economy tackled several challenges: the energy crisis, terrorism and political instability. These stifled the country’s capacity to focus on macroeconomic stability resulting in current account and external account imbalances. The newly elected government of Pakistan took office in August 2018 and elected Imran Khan, chairman of the winning political party, as the 22^nd prime minister of Pakistan. Having severely criticized the economic reforms agenda of governments over the last 22 years, this new government promised the public to come up with a strong mandate for economic reforms. These reforms vowed to not only focus on economic growth and development but also to improve the living standards of the poor. The Pakistan Tehreek-e-Insaaf (PTI) government guaranteed to increase the tax base, reform the Federal Bureau of Statistics, generate private sector activity, establish a 5 million unit housing project and improve foreign direct investment and remittances.

However, ever since the PTI government took office, like their predecessors they have claimed that Pakistan’s treasury is in fact empty. They expressed worry over the country being in need of at least 18 billion dollars. This would then enable the government to finance a severe short fall in foreign exchange arising from mounting import bills and debt financing, triggered by a sharp fall in exchange rate in term of dollars.

Pakistan landed into a macroeconomic crisis as early as March 2018 when the overall public debt burden reached Rs 28,297 billion on March 31, 2018. Amounting to every citizen being indebted with Rs1,36,700 on average. While there has been a continuous rise in import bills, the export to GDP ratio has declined from 11.2% in 2007 to 7.2% in 2017. To pacify the yawning gap between exports and imports the PTI government has charted down a strategy. One instance is of the government trying to assist exporters by discovering new markets overseas and working to improve the ease of doing business rankings. Furthermore, Pakistanis employed overseas have been requested to send their money back to Pakistan through formal banking channels so that country’s FOREX can be increased. However, with Pakistan’s low credit rating, the government knows it is difficult to raise any amount above two to three billion dollars from international markets. Another external factor which seem to have aggravated the financial crisis within the country is the rapid rise in oil prices in international markets.

Despite PTI’s initial reluctance to approach international agencies for short term economic bailout plans, the Finance Minister has entered negotiations with IMF, requesting for another bailout program. More than 35 percent of Pakistan’s public debt is external, and most of this debt is taken from multilateral lending institutions like IDP, ADB, IMF and World Bank etc.  This policy brief critically analyses Pakistan’s approach to an IMF bailout program. It further sheds light on the historic context to provide a rationale, if any, in benefiting to stabilizing Pakistan’s macro economy through availability of short term lending support by IMF in coming months.

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This report provides an analysis and evaluation of Benazir Income Support Programme (BISP), a major social safety net programme initiated in 2008 in Pakistan. The worldwide public opinion has assumed that such programmes are successful at reducing inequality and poverty.

However, the effects of social safety nets tend to differ across country to country and region to region therefore a detailed study is in order to discern the success of the programme.

Safety net interventions in Pakistan have suffered from a conspicuous lack of evidence based policy making. Numerous evaluations of the targeting process of programmes have identified design and implementation weaknesses. According to World Development Indicators (WDI) 2013, 60 per cent of the population in Pakistan lives below poverty line corresponding to $2 or Rs. 210/-1 per day so social protection as an area of government intervention has achieved enhanced budgetary priority in Pakistan recently with the advent of programme like BISP.

The aim of this report was to review the design of BISP, its effect on the private charity, attitudes of programme beneficiaries, focusing on collecting information regarding disbursements, procedural problems, and needs fulfillment and it examined the impact on the household standard of living. A survey was conducted among 1,000 beneficiaries of BISP from Malakand and Azad Jammu & Kashmir.

The results indicate that there are inefficiencies and irregularities in disbursement procedures. The amount of cash grant is in-sufficient to fulfill expenditure needs of the beneficiary families at large and has no impact on their living standards rather it has created a very high dependency of the beneficiary families on the cash grants. People do not conceive cash grants as their right instead they regard it as a help from government. Even if they consider it as a help it is a discouraging fact that the cash grant are unable to motivate people for work. While private charity continued to prevail along with BISP cash grants.

It is recommended that to achieve poverty alleviation, the programme requires restructuring towards long-term and permanent solutions such as replacing cash grants with programmes through which human capital is enhanced like vocational training and educational programmes.

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Is foreign aid effective?. This question becomes all the more important if viewed against the backdrop of calls for doubling foreign aid to developing countries. The answer to this enquiry, however, has spawned a debate among mainstream academia with each side postulating viable arguments in their defense. In case of developing countries, the for-aid camp points toward the foreign-exchange bottleneck as well as insufficient savings as the rationale for foreign aid which makes up for such deficiencies. The theoretical foundations for this argument can be traced to the famous Harrod-Domar model which implicates that low saving rate dents the growth process (Harrod, 1939 and Domar, 1946). As of late the case for foreign aid has assumed a humane face by appealing to the stalled social sectors of developing countries.

This role of foreign aid was duly formalized by the integration of Official Development Assistance in now defunct Millennium Development Goals (MDGs) and the recently promulgated Sustainable Development Goals (SDGs). Contrarily, not-for-aid camp directs their criticism on foreign aid based on the fact that it rather than helping the poor countries, subverts the growth process by distorting market incentives and highly politicizes the development endeavor beyond bounds. Criticism of foreign aid is also leveled from the political spectrum both from “the Left” and “the Right” with the latter hinting the potential pauperism that it can ensue while the former points its neo-imperialist connotations. The empirical evidence also paints a contradictory picture of aid effectiveness. There is wide literature which suggests that “by and large” aid has been effectiveness contending that income per capita would have been lower in the recipient countries had there been no aid (McGillivray, 2004 and Sasaki, 2006). One strand of literature asserts that aid affective is contingent on the domestic policies of the recipient countries like Burnside and Dollar; 1997, 2000, 2004; Collier and Dollar, 2001, 2002; Collier and Hoeffler, 2002.

This paper attempts to add to this debate on aid effectiveness by evaluating it in the light of arguments for and against foreign aid from the perspective of Pakistan with especial focus on its political economy. It must be noted here that this research is limited only to aid flows by bilateral and multilateral sources to Pakistan instead of private flows of funds. Furthermore, to the best of our knowledge the paper also assesses arguably for the first time in Pakistan whether foreign aid has become a resource case. Section 1.2 delineates the major concepts of aid economics; section 1.3 takes stock of Pakistan’s incessant relationship with foreign aid and section 1.4 gives a bird’s eye view of the structure of foreign aid in Pakistan. Furthermore, section 2 and section 3 evaluates the arguments for and against aid respectively in terms of Pakistan while the final section concludes.