Donors Should Link Aid to Governance Reforms
By Abid Hasan
Former Operations Advisor, World Bank
Pakistan is being promised billions of dollars in aid, from bilateral and multilateral donors. Donors would be well advised to incorporate global and Pakistan-specific lessons of failure and success of development assistance, to ensure aid helps and not hurts Pakistan.
Foreign Aid in different times and in different places has been highly effective, totally ineffective and everything in between. It has been a spectacular success in a few countries, mostly in East Asia. On the flip side, it has been an unmitigated failure, especially for most of Sub-Sahara Africa where aid has permitted poorly governed countries to pursue development that has been wasteful, ill-conceived and unproductive. Several key lessons have emerged from past 50 years of development assistance.
First, and the most important lesson, aid has only been effective in an environment where there is Good Governance, Effective and Accountable Public Institutions, and Good Policies. Failures in policy making and institution building, and poor governance, are more severe constraints to development, than lack of aid.
Second, it is unambiguously clear that "Money alone can neither buy sustained Development nor sustained Stability". The abysmal development outcomes in Sub-Sahara Africa and most of South Asia is a classic example where billions of dollars have neither sustained growth nor led to any noticeable improvements in human and social indicators. Third, spending more resources alone does not guarantee improvement in services for the poor, for the effectiveness of spending—and well functioning and accountable service delivery institutions-- is more important.
Pakistan's own recent experience is no different in respect of aid effectiveness. Thus, during the decade of the 90s, donors poured over $30 billion. Regrettably there is not much to show for this aid. This was Pakistan's 'lost decade' where governance was poor, growth was low, and human indicators remained mostly static at unconscionably low levels.
During this period, the experience of major multilateral donors –World Bank, IMF and Asian Bank-- was also equally unsatisfactory. Between them, they provided almost $10 billion of project and fast disbursing loans. And for the most part this lending had limited, if any, impact on improving either the lives of ordinary folks or their access to education, health, justice or economic opportunities. The World Bank's own evaluation rated the impact of Bank's assistance program, during this period, as Unsatisfactory.
Pakistan used aid reasonably effectively during the first few years of this decade— when governance was somewhat better than in the 90s, sound policies were pursued and some institutional reforms initiated. However this success was short lived, because fundamental governance and institutional reforms –critical to nation building and rule of law --were either ignored, or glossed over, both by government and by the donors. And therefore, the success quickly evaporated a few years latter, when the personalized system collapsed, and Pakistan fell into the same political and economic quagmire where it was at the end of 90s.
Good governance environment is especially important for success of budget support and balance of payment loans. In the last decade donors provided close to $ 8-10 billion of such support. Clearly this type of assistance enabled Pakistan to avoid a default after the nuclear test, and in recent months, and expanded the country's import capacity to sustain higher growth, but the key question remains as to its usefulness and effectiveness. Because fundamentals were largely ignored, the implementation of reforms supported by these loans were always a case of "glass half full". Therefore, Pakistan is no better today—either in terms of performance of key institutions or state of the economy—then a decade back. Of course there are more cars, more air conditioners, more mobile phones, but the lives of ordinary folks has hardly improved and permanent change for good in policies and institutions have been few and far between. Budget support lending in an environment of poor governance and political instability is a disservice to the country, as it simply continues to prop up a flawed system and in the end there is not much to show for it except foreign liabilities which future generations would have to bear.
For the sake Pakistan and the 100 million Pakistanis who are living on the edge, it is important that donors must incorporate lessons of history as they ratchet up their programs. Aid must be linked to Good Governance. Bilateral donors ( especially the US, UK and Japan) need to pro-actively support civil society's movement for good governance and rule of law, and not simply pay lip service or avoid taking a public stand. These "mega-buck" donors must link their aid to practice of good governance and rule of law that are corner stones of their own governance and political systems. These donors are doing themselves ( and their tax payers) , and ordinary Pakistanis, a big disservice by remaining silent on egregious actions--- NRO, removal of Chief Justice, elitist capture of political institutions and the state, moribund anti-corruption framework and institutions --- all of which undermine good governance and democracy.
Donors must require a credible Good Governance strategy and implementation plans , comprising at least, the following : rescinding aspects of NRO relating to the corrupt , and establishment of an Independent Anti-Corruption Commission which has jurisdiction over all branches of government, legislature and the judiciary; independent audit of tax returns of all elected legislators, and government and judicial officials above a certain rank, to ensure that declared personal income matches the life style of these officials; strengthening accountability and incentives to improve performance of institutions providing services to the poor; making the Election Commission independent and powerful; and restoring the moral authority , integrity and professional quality of judiciary by re-appointing all judges through the COD prescribed mechanism.
All the above actions will strengthen Pakistan's governance and institutional foundations and democracy , thereby avoiding a systemic collapse every few years . Also this will ensure sustainable pro-poor development, so that benefits of aid reach the vast majority of citizens and they have a stake in nurturing and protecting both an open and pluralistic democratic system of governance and a market based economic structure. Importantly this will usher a political system that nurtures hundreds of Obamas rather than being stacked with thousands of CCCs ( Corrupt, Crooks and Criminals).
External pressure for good governance would be welcomed by civil society and the poor who are clamoring for fundamental governance reforms, but are weak in relation to vested interests benefiting from bad governance. Donor pressure can be instrumental in a country which is so dependent on external assistance. Civil society would get emboldend if donors openly espoused what is "Right", and not be shy to speak up and 'walk the talk'. Donors should not worry too much from the backlash of the interest groups who are likely to lose. Donors must recognize that as long as bad governance continues, winning the war on terror will be an uphill task and ordinary folks will ultimately get disenchanted with the status quo ( as happened in Swat) and support radicalism and violent means for change. Therefore, except for humanitarian aid and targeted pro-poor assistance through non-government agencies , all other aid should be linked to implementation of credible governance improvement reforms, starting with the actions noted above.
Pouring money into dysfunctional government institutions, in a poor governance setting, will neither guarantee development nor stability. Nor will it reduce the frustrations and temptations that lead young people to choose the path of confrontation and opt for groups that preach hate and terror. Wasteful aid hurts the country's reputation, but worse preserves an elitist system –government of the elite, for the elite and by the elite-- and sham democracy which will crash every few years.
Donors must realize that 'doing the right thing' must take precedence over expediency, that promoting Good Governance will also promote democracy and sustainable pro-poor growth. Donors should be part of the solution and not become a main contributor to the problem. For Pakistan's sake, key donors must link aid to fundamental governance and institutional reforms which ensure a stable , democratic, prosperous and inclusive Pakistan, and not support the status quo which will continue Pakistan's slide into a dysfunctional state.
Abid Hasan, Former Operations Advisor, World Bank
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N A D E E M M A L I K
Director ProgrammeAAJ TV
ISLAMABAD
00-92-321-5117511nadeem.malik@hotmail.com
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