Introduction : The foreign resources and foreign assistance have played an important role in the economic development of those countries which are known as Developed Countries (DCs) today. The development of Canada, Australia and Norway was mainly dependent upon the inflow of foreign capital. Thus, the origin of foreign aid goes back to the days of 17th and 18th century. However, it got much more importance after World War II, when it was thought to remove the poverty of millions of people residing in the backward regions OF Asia, South America and Africa. Accordingly, the official as well as unofficial transfer of resources started taking place. Since 1947 to present times, all over the world the foreign aid or foreign assistance has got a lot of attraction. In our present discussion, we will be concentrating upon the followings:
- Concept of foreign assistance
- Importance of foreign aid for Pakistan
- Types of foreign aid
- Sources of foreign aid
- Problems pertaining to foreign trade
- Debt servicing charges
CONCEPT OF FOREIGN ASSISTANCE The foreign assistance may assume different forms like grants, developmental loans, foreign private assistance, official loans, tied and united foreign loans, bilateral and multilateral loans, and many others.
If a country faces drought, earthquake, floods and other natural clamities-all may result in loss of lives, kinds and property. Therefore, to compensate for such all the other countries, governments and international agencies provide assistance to the affected country or countries. Such assistance may be in the form of funds as well as in commodities. Such aid and assistance is given the name of grants because they are given once for all, the recipient country has not to be repaid, either its principal amount or interest against the amount given by the donors. The example of grants are those assistances which have been given by western world and UN, to ‘Afghan Refugees’, ‘Bosnian Refugees’, and those people who have to be migrated to other countries because of civil wars, ethnic and communal riots.
- DEVELOPMENT LOANS
There are so many world institutions like IBRD, IDA and MIGA etc. Which provide development assistance to their members at the rate which is below the market rate of interest. The loans are provided for the longer period till 50 years at concessionary rates and easy terms. Such resource transfers really represent foreign aid, because the interest charged against such loans hardly meets the fall in the value of the funds. The examples of developmental loans are the funds which have been provided to us by the World Bank and its affiliates in connection with the construction of hydel and thermal power generating units etc.
- OFFICIAL LOANS
Sometimes the governments of developed countries form a consortium in order to provide loans to the poor countries of the world. “As” the case of Aid Consortium to Pakistan. Such official loans are given under commercial basis. However, sometimes such loans are also provided at concessionary rates. Most of the such loans are given for the long time. The concession is also granted in the repayment of loans and interest charges, if required.
- FOREIGN PRIVATE INVESTMENT
Such foreign resources do not represent assistance or aid, rather It is the inflow of capital on the commercial basis. “If” the foreigners lend they will be entitled to get the interest against the funds lent. While, if they make direct investment in the businesses they will share the profits etc on the stipulated conditions. As the case of investment made by America, Korean and British investors in the field of power generation, and oil and gas exploration etc.
- TIED AND UNTIED LOANS
Under tied loans the donor country imposes certain restrictions. The donor country may force the recipient country to purchase the machinery, raw material capital goods and technical assistance from the donor country. It may also happen that the donor country advances for some particular project or particular field. On the other hand, that foreign assistance which is provided without imposing restrictions is called untied loans. Accordingly, the recipient country can the borrowed money where ever it likes, and the way it deems feasible 6. BILATERAL AND MULTI LATERAL LOANS If the lending and borrowings take place in between two governments such will be case of bilateral loans. For example, if Pakistan borrows from US it will be case of bilateral loan. If there exist so many parties in borrowing and lending such will be the case of multilateral loans. As the case of Arid Consortium to Pakistan which is consisted of US, UK, France, Italy, Netherlands, Japan and World Bank etc. Such consortium jointly analyses the developmental needs of Pakistan and then provides the assistance. The new name of consortium is Pakistan Development Forum.
7. FINANCING OF BOP It is the IMF which advances loans or credits purely on the BOP considerations. It means that IMF provides loans to those member countries under different credit facilities which suffer from deficient in their BOPs. IMPORTANCE OF FOREIGN AID TO PAKISTAN
- Remove paucity of capital
- Removal of technological backwardness
- Construction of infra-structure
- Establishment of key industries
- Exploration of natural resources
- Raising the level of employment
- External and internal economies of scale
- Economic and social changes
- Removal of BOP deficient
- Increased government revenues