Demystifying foreign aid

Since the devastating floods that hit Pakistan in July and August, there have been three major donor conferences. There was the September meeting at the UN in New York that was focused on the emergency and relief required in flood-affected areas. There was the pre-scheduled October meeting of the Friends of Democratic Pakistan (FODP) group of countries. And after three years, the Government of Pakistan convened the Pakistan Development Forum (PDF) this year in Islamabad on the 14th and 15th of November. For Pakistanis who do not work in the field of public policy, or more specifically in the world of international aid and foreign assistance, these meetings can easily be construed a number of ways.
Casual observers could easily conclude that first, under the Musharraf regime, and now under the democratic government of the PPP, Pakistan has been reduced to a rentier or beggar state (or both). The country is incapable of meetings its own needs and constantly needs to seek help with the bills. Of course, this kind of an observation would have to be made by people who are either deliberately ignoring the circumstances that have produced the current situation, or who are plain, outright ignorant. Three very large and very important shocks have rocked the Pakistani economic system in recent years-natural catastrophes, violent conflict, and global price shocks. While most countries can claim to have been victimized by one of these, and perhaps some can claim to have been victimized by two, there is hardly any country on the planet that has had to take on all three kinds of shocks at the same time. Perhaps most crushingly, these challenges have been thrust on Pakistan in a global environment where the narrative of Pakistan is of a country that is fully responsible for every problem that afflicts it (true but only partly), and therefore deserves, deserves to be left to solve those problems itself (not true at all).
This debate reflects for the most part, the

mainstream narrative about Pakistan's current condition viz a viz the assistance coming to Pakistan. Pro-government folks rabidly cling to the faith that Pakistan is correct to go all out to get money from other countries for the special pain that afflicts the country. Anti-government folks sneer contemptuously at the indignity of begging-bowl diplomacy.
Of course, this simplistic back-and-forth action suffers from a serious lack of basic facts about foreign aid, or international assistance, and Pakistan's own frameworks for seeking and absorbing such help. There are a number of distinctions that one would need to be able to make, if one was to determine how good or bad, any kind of assistance is. Most times, these distinctions or cleavages exist in multiplicity-that is that aid often takes more than one shape or form at the same time. Let's look at some of these, to get a better idea of what all this might mean.
Perhaps the most important division we need to understand is the division between humanitarian assistance and development assistance. For most practitioners, this distinction holds limited value in a country like Pakistan, where so much of the recent assistance to Pakistan has been humanitarian, and where a lot of the "development" assistance, has been supplanted, or replaced by humanitarian programmes. Humanitarian assistance is provided in conditions that resemble emergencies (three most notable recent Pakistani emergencies are the October 23005 earthquake, the IDP crisis generated by the military operations in Swat and other areas, and the August 2010 floods). Humanitarian assistance is necessarily short term, because it seeks to address the short-term shortages, and problems that an emergency situation creates. Since it needs to be deployed quickly and needs to have a very fast disbursal mechanism, humanitarian aid tends to be least encumbered by the accountability, transparency and public financial management requirements that often constrain, restrict and slow down regular "development" assistance. From the perspective of governments, humanitarian assistance is very rarely channelled through government systems-because (unsurprisingly) recipient governments often have cumbersome and slow processing regimes.
Another vital distinction in the aid world is the difference between bilateral and multilateral donors. Bilateral donors are almost exclusively sovereign governments that have international development assistance programmes, ministries or departments. This of course does not strictly adhere to the literal meaning of bilateral – and large foundations, such as the Bill and Melinda Gates Foundation or the Aga Khan Foundation, often have programmes that are larger in total size than the aid programmes of whole countries. Small, developing countries must therefore treat such foundations as "bilateral". Multilateral donors are donors that represent more than one country, and in Pakistan this includes the UN system, along with its almost dozen and a half UN agencies, the European Union's delegation to Pakistan, the World Bank, the Asian Development Bank, the Islamic Development Bank and others. The importance of the distinction between bilateral and multilateral is usually that while bilateral donor assistance will often be either explicitly, or implicitly supporting the foreign policy aims of the country giving the aid, multilateral donors are usually apolitical, to the extent that they are not burdened by the ambient foreign policy dictate of any single country, or foreign ministry.
Both bilateral and multilateral donors provide two kinds of assistance, which makes our third major distinction. Aid can be in terms of loans, or in terms of grants. Of course, this is a vital difference. Every time the government of Pakistan authorises the Ministry of Finance to take on a loan, my children (and your children) are indebted-not the case with grants. There is no rational reason to consider the loans received by Pakistan from creditors as a favour-because creditors are benefitting from a return on their loans-even if the terms are sometimes (and in recent years, often) concessional and discounted. Most bilateral donors now overwhelmingly provide only grant assistance and often, when so disposed, are involved in supporting a country's bid for loans, at the headquarters of the multilateral banks that make such loans. This is why the support of countries like Turkey, the United States, the UK, Norway, Australia, Germany, The Netherlands, Saudi Arabia and others are not entirely captured in dollar figures. Their endorsement of loans by the World Bank, the Asian Development Bank or the Islamic Development Bank are also important.
One important metric to keep in mind in assessing the total value of assistance to a country is to ascertain the distinction between total committed aid, versus total disbursed aid. Many countries and donors are able to make promises at donor conferences, but not able to keep them, when the camera stops flashing. Disbursed aid (not committed) is the important metric in assessing the total quantum of aid given by a donor.
Project aid versus programme aid is another important division. Project aid is money given to a specific project, whereas programme aid is usually meant to support large sectoral assistance interventions.
Finally, the most important distinction for a country that is the size of Pakistan, and with the kinds of problems Pakistan faces, is who the aid is being given to. Aid can be provided to governments, or it can be provided to non-state actors-such as contractors, firms, and civil society groups. Government aid itself can be of several kinds, including budget support, and project aid.
Without understanding these distinctions, and knowing who is giving what, and to whom, the national conversation about international aid or foreign assistance is largely a rhetorical jousting session, not serious policy discourse.

(To be continued)

The writer advises governments, donors and NGOs on public policy.