Foreign-Aid Requirements: A Critique of Aid Projections with Special Reference to Pakistan

Moin Baqai, Irving Brecher


It has become fashionable, during the past decade, to study
the problem of foreign aid in terms of projection of aid requirements.
Foreign aid is typi¬cally justified in the donor countries as a
commitment to achieve a specific development objective having a finite
cost. For the developing countries, on the other hand, the
"requirements" approach helps to focus attention on the inadequacy of
the existing levels of foreign aid and gives concrete shape to their
demands for more assistance1. While projections have served a useful
purpose by indicating the broad orders of magnitude of aid requirements
and suggesting some criteria for aid allocation, they are, by their very
nature, based on a number of simplifying assumptions about the behaviour
of certain key relationships in the economy. Savings, import
substitution and the choice of technology cannot really be treated as
independent of the volume and form of foreign assistance. The
limitations of aid projections, which generally do so, are obvious to
those who make them and those who use them. Justification for the
continuing interest in such estimates lies in the "ceteris paribus"
assumption so commonly made in economic analysis. By the same token, one
must exercise substantial caution in drawing policy conclusions from
those estimates2

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