Eliminating Dependence on Foreign Aid— Some Policy Implications

A. R. Kemal


The domestic resources of the developing countries are usually
too limited even to permit a steady maintenance of their per capita
income. In their attempt to improve the level of their per capita
income, such countries resort to the strategy of increasing their growth
rate by relying on foreign resources. In an economy, where population is
growing at the rate of 3 percent per annum, and saving capacity is less
than 10 percent of the G.N.P., the chances of increasing the per capita
income are very low. Capital inflow allows an economy to grow at a
higher rate. It is expected that an increasing proportion of increased
income will be saved so that the economy would be self-reliant after
some years. How¬ever, most of the aid to the developing countries is in
the form of loans, often on very unfavourable terms, with the result
that the debt servicing problem becomes quite serious. The huge burden
of debt servicing makes it rather difficult for the developing countries
to attain self-reliance. Since a continuous aid inflow means a surrender
of national sovereignty to some extent, almost all the developing
countries want to eliminate their dependence on aid as soon as possible.
To achieve this objective, many developing countries set a time period
after which the capital inflow would hopefully be zero. If a time limit
is to be set, then we must know the policies that a government will have
to follow in order to eliminate aid flows. In particular, we need to
know the maximum allowance for consumption out of the increase in
national income. Similarly, if there is a limit to the marginal
propensity to save, we must determine the period over which a country
can realistically hope to do away with the aid.

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DOI: https://doi.org/10.30541/v14i4pp.381-396


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