Pakistan - International Development Committee Contents

2  The case for UK development assistance to Pakistan

Population growth outstripping economic growth

7. Pakistan is the sixth most populous country in the world with an estimated population of 180 million. By 2020 the population could exceed 205 million, with nearly 40% aged 10-29 years .[6]

8. Pakistan's economic growth averaged only 3.5% over the past five years[7] compared to India's 6.9% and Bangladesh's 6.2%.

Table 1

This means Pakistan is struggling to maintain living standards or to create jobs for millions of young people, leading to increased poverty and instability.[8] Anwar Akhtar, a civil society activist, told us:

    The issue is that everything that has stopped Pakistan from being a failed state to date—the welfare organisations, the diaspora organisations, the civil society organisations—cannot cope with a doubling of population in two generations. I have spoken on the ground to numerous health workers and development workers, and they all say the same thing: "Karachi and Lahore cannot cope with a doubling of population. We are two generations away from favelas and shanty towns and no go areas, and very difficult urban environments."[9]

We were told on our visit that it has been estimated Pakistan's growth rate needs to double to keep pace with population growth and more than double to actually see people better off overall.

Social indicators

9. Pakistan has very poor social indicators. As many as one in three Pakistanis live on 30p a day or less, one in eleven children die before their fifth birthday and half of all adults, two thirds of women, are illiterate with 12 million children out of school.[10] Professor Lieven said:

    irrespective of the comparative position with other countries and our security needs, there are a lot of very poor people in Pakistan who have a desperate need for a whole range of things they are not getting.[11]

10. DFID have said that Pakistan is off track to meet the majority of the Millennium Development Goals(MDGs) by 2015[12] although the following chart, also supplied by DFID, indicates slow progress as opposed to off track:

Table 2

Source : DFID Ev 53

Humanitarian disasters

11. Pakistan has faced many humanitarian disasters in the last decade. In 2005 the Kashmir earthquake affected approximately three and a half million people; in 2008-09 the internal displacement of people crisis affected approximately three million people; in 2010 floods affected approx twenty million people; and in 2011 floods affected approximately nine million people. In 2012 the monsoon floods meant three million people needed external support.


12. Pakistan faces security problems which are home-grown, as well as problems which spill over from the border with Afghanistan. Conflict and sectarian violence has caused sustained and severe suffering amongst the people of Pakistan. There is currently an ongoing humanitarian crisis in Khyber Pakhtunkhwa affecting 1.1 million of internally displaced Pakistan citizens and Afghan refugees.[13] Since 2001 more than 30,000 Pakistani civilians have been killed and many more injured. The Government of Pakistan estimate that the adverse security situation has cost Pakistan's economy up to $67.63 billion since 2001.[14]


13. DFID says that a politically and economically secure Pakistan can help to support stability and development across the region. James Fennell, Principal Consultant, the IDL Group, described Pakistan as the "Northern Ireland of south Asia". He said that if Pakistan did not succeed politically then that it would handicap both India and the wider region—the belt from Iran to Burma:

    Pakistan does need help, not just in the context of the poor people inside Pakistan but in the context of poor people across the region.[15]

The Secretary of State accepted there was a security angle saying "here is a counterterrorism and security aspect of our thinking" and that DFID was " working alongside the Government of Pakistan, to try to stop extremism from rising up."[16]

Policy influence

14. The UK Government hopes that the size of the UK's development assistance budget, and its broader support for Pakistan, gives the UK the opportunity for high level discussion with Pakistan's opinion formers and decision takers on a broad range of policy issues both domestic and external. The Secretary of State told us:

    I do not think our aid budget per se is designed to buy influence. [...]it can open up an ability for the UK Government, as a hopefully trusted partner of the Pakistan Government, to have [...] discussions and be properly listened to [...]part of the work DFID does alongside the Foreign Office is to [...] try to make sure that we have the right conversations with Pakistani politicians about the reforms we feel need to happen in Pakistan.[17]

Professor Lieven thought that "British influence would go down very sharply" if DFID was not working in Pakistan. [18]


15. The UK has one of the largest Pakistani diasporas in the world (one million people, 1.7% of the UK population) creating strong family and business links between the UK and Pakistan.[19] Professor Lieven said:

    we have a very large and steeply growing Pakistani population in this country, which has a legitimate right to ask that we should give help to Pakistan.[20]

Time for change

16. James Fennell believed that Pakistan was currently in a similar position to the UK in 1830 with an industrialising, rural society, large numbers of people moving to cities, people becoming more politically aware but not politically engaged with the existing system, built around a dated rural, oligarchic structure.[21] He concluded that Pakistan:

    can go the way of Russia in 1905, or [it] can go the evolutionary path of the UK. So there are some good incentives for the ruling classes to begin to give up some of [their] privileges in a sort of self serving way, not because they are altruistic but because they need to survive. [22]

In addition Professor Lieven observed that members of Pakistan's military were becoming increasingly concerned at India's rapid economic growth compared to Pakistan's. That was inclining some of them to think more seriously about what Pakistan needed to do to achieve economic development.[23]

The risk of doing nothing

17. We were given two potential future scenarios for Pakistan whilst visiting Islamabad:

i.  A country of 300 million people with fewer children in school and an increase in malnourished and permanently stunted children. A nation with only 5% economic growth, continued instability, potentially militarised, potentially radicalised, a continuing 'cold war' with India, an internationally pariah state, terrorism, a training ground for extremism; or

ii.  A country with elements of the above but with a flourishing middle class, 6-8% growth like India, continuity of civilian governments, normal civilian/military relations, political accountability with a government responding to voter pressure, a free media, an active judiciary, improved governance, universal primary education, improved health facilities and access, a less corrupt legal and justice system. A nation with a wealthier, more educated, healthier society.

In the former scenario, the UK would suffer from a resulting increase in extremism, terrorism, drugs (Afghan heroin), organised crime, and asylum applications. But the latter scenario would benefit the British Pakistani Community and be good for UK trade

18. Sir Michael Barber, DFID's representative on education in Pakistan, explained that he thought it was important to have a DFID programme in Pakistan because:

    the risks of doing nothing in Pakistan are absolutely enormous, and if we can use some well targeted aid programmes to build great relationships with Government, people and civil society people to make big changes, that is the most important thing we can do.[24]

The case against aid to Pakistan

19. As well as being presented with many arguments as to why DFID should be in Pakistan we were also given reasons to the contrary. These are listed below along with some counter arguments on the need for a DFID presence despite these factors.


20. Pakistan is a lower middle income country like its neighbour India; if it were an Indian state it would be somewhere in the middle of the Indian states' income scale.[25] Whilst the UK is cutting aid to India, it is doubling aid to Pakistan.

21. Michael Green, economist, author and development commentator, argued that although both were classed as lower middle income, Pakistan was in a very different position to India. In 2011, total official development assistance from all donors to Pakistan was about 1.7% of national income compared to total aid to India in 2011 of 0.2% of national income. India's national income was about $3,500 per year per capita; Pakistan's was about $2,500, based on purchasing power parity.[26]Although there were some concerns about the Indian economy, its growth prospects were good over the medium term. In contrast, Pakistan's economic future looked fairly bleak: growth has slowed since 2008 and there is unlikely to be more than 3% growth over the next few years. Mr Green also pointed out that Pakistan had a lower rating on the Human Development Index,[27] than India. Aid makes up 8% to 9% of national income in most low human development countries so relative to those peers, Pakistan is under-aided at 1.7%.[28]

22. Omar Waraich argued that despite Pakistan's a lower middle income status, it still needed assistance:

    The status of it being a middle-income country is less relevant right now because the [...] structures and the institutions are not in place for any new wealth to be distributed effectively and address concerns like health and education.[29]


23. While middle income status is not by itself a reason for withholding aid, weaknesses of the state in Pakistan and a lack of political will to address inequality and equitable development inevitably raises questions about the impact and long term effectiveness of UK development assistance.


24. In 'Pakistan a Hard Country' Anatol Lieven describes Pakistan as having "tough creepers holding the rotten tree of the Pakistani system together" but that some of the "toughest creepers" are at the same time "parasites on that tree". He goes on to explain:

    Anyone or any group with the slightest power in society uses it amongst other things to plunder the state for patronage and favours, and to turn to their advantage the workings of the law and the bureaucracy.[30]

25. Four fifths of Pakistanis view government corruption as widespread.[31] In 2011, Transparency International ranked Pakistan 134 out of 185 countries in levels of corruption with 185 being the most corrupt.[32] The World Bank's Control of Corruption indicator shows Pakistan has been getting worse since 2007.[33]

26. Anatol Lieven explained that corruption was not necessarily the result of a lack of values as seen in the West but rather the positive and ancient value of kinship loyalty to family and clan. Defence of the honour and the interests of the kinship group outweighs loyalty to the state or to any code of professional ethics for ordinary Pakistanis as well as for most politicians and officials.[34] However he agreed that although the patronage networks held the existing system in place and prevented the country from falling apart, at the same time they were bad for the long term development of the country.[35]

Poor government financial management

27. Last year, the Pakistan Government ran a deficit of 8.5% of national income. The Government is hoping to cut that to 4-5% this year but it is more likely to be closer to a 6% deficit.[36]

28. Government accounting is very weak. Dr Ahmad - from the LSE and former Pakistan adviser to the IMF—told us that while the Pakistan Government was seeking $8 billion from the IMF to cover its deficit, it had $10 billion "sitting around in commercial banks, idle".[37] He said that every country had a treasury single account except for Egypt and Pakistan. The IMF defines a treasury single account as "a unified structure of government bank accounts that gives a consolidated view of government cash resources" and that it is "an essential tool for consolidating and managing governments' cash resources, minimizing borrowing costs."[38] Dr Ahmed said that in Egypt there were 35,000 bank accounts holding up to 15% of GDP under President Mubarak whilst Pakistan still had over 10% of GDP in bank accounts that was not being utilised.[39] He argued:

    They are there for certain reasons, and if you are going to say, "Fine, let us have business as usual," business as usual sometimes does not last. You can play along, as you did with Mubarak [...], but there are consequences. You do not have to look far to see the consequences; they are quite stark. It is effectively a collapse of the State.[40]

29. Moreover, the Government does not know how much it spends. Dr Ahmad also told us that he had recently spoken to the Deputy Chairman of the Planning Commission in Pakistan who had told him "We do not know what we are spending on education and health, but we know that in global terms, on education, health and investment, it is not more than 5% of GDP."[41]

Low tax revenue

30. For the last decade, tax as a proportion of GDP has remained at or around 10%.[42] This compares to tax collection rates of around 14-15% of GDP in countries with similar per capita incomes.[43] Pakistan's VAT efficiency[44] is 25%, the lowest in the world; by way of comparison, Sri Lanka's efficiency rate is 45% and New Zealand's 90%.[45]

31. According to the Pakistan Federal Board of Revenue (FBR), around 0.57% of Pakistanis, a mere 768,000 individuals, paid income tax last year in Pakistan with only 270,000 having paid something each year over the past three years. [46] No one has been prosecuted for income tax fraud for at least 25 years.

32. A recently published report found that—over 70% of the Pakistan law makers, including many Ministers do not pay tax.[47] Dr Ahmad said "the culture of cheating starts at the top". [48] He also argued that:

    "If donors, both bilateral and multilateral, take the argument that you must bail out Pakistan regardless, then there will never be any incentive for them to fix it and stand on their own feet."[49]

The attitude of the elites

33. Pakistan can show some remarkable achievements, for example, its nuclear programme, which demonstrates the power of its political class to deliver public policy when it so wishes. Anatol Lieven makes the point that 'if it really sets its mind to it', Pakistan can deliver.[50] The recent outbreak of Dengue Fever is another example of elite political will delivering a positive result. Because it affected the families of the middle classes and elites in and around Lahore, as well as the poor, the authorities managed a successful health campaign to contain the disease. Meanwhile other diseases which affect mostly the poor such as malaria are not being tackled or improved. Omar Wariach told us:

    if something like this [dengue outbreak] were to take place in a remote part of Balochistan, you would not see the state respond in that way, because the people affected by it do not have the means to make their grievances known, the politicians do not face the pressure to respond and the state does not have the resources there.[51]

34. James Fennell argued that the reason that the elites were not interested in social service reform was because:

    The majority of people who have power and influence do not use the social services. They do not use the health service and the education system, which are provided by the state. They do not use the tax administration, since they do not pay any taxes. Those institutions are not part of their lives.[52]

Defence spending

35. Spending on defence rather than on health or education has been a priority for Pakistan. The country has an advanced weapons of mass destruction programme. According to the UN Educational, Scientific and Cultural Organisation (Unesco) Pakistan spends seven times more on arms than it does on education.[53] Omar Waraich said:

    The reason why such derisory sums—in terms of the budget—are devoted to health and education is because those things are not a priority in a national security state.[54]

The role of Pakistan in Afghanistan

36. It has widely been reported that whilst the UK and its allies have been fighting the Afghan Taliban over the past ten years at the same time the Pakistan Security services, the Inter-Services Intelligence Directorate (ISI), have been supporting them.[55] Ahmed Rashid, an expert on the region, claims that in 2003, the ISI helped the Taliban to restart their insurgency in Afghanistan and provided them with the supplies, training camps and infrastructure.[56]

Absence of a 'Golden Thread'

37. The Secretary of State emphasised what the Prime Minister, David Cameron, has referred to as the 'Golden Thread': the rule of law, tax collection, a well functioning court system, transparency in Government.[57] She also told us:

    we can work with countries to try to help them develop, but fundamentally if there is poor governance and poor structures in place, no democracy, poor accountability, poor transparency and high corruption, that will be a difficult situation in which to invest our money and see development take place effectively.[58]

Many of these features highlighted by the Secretary of State—of the type of country where DFID should not invest its money as it is difficult for development to effectively take place—are evident in Pakistan.

The case for reform

38. No one disputes that it is important that Pakistan is a successful state for the benefit of its people, the region and the world but the drivers for reform must come from within. The effectiveness of foreign development assistance requires Pakistan country ownership of the development agenda. The preceding arguments and statements from witnesses suggest that, historically Pakistan seems to lack such ownership and the political will to address the elements of governance that comprise 'the Golden Thread' essential for sustained development. Tax collection is very low, defence spending is high and the resulting government expenditure on public services is minimal. Donor funds for development are filling the gap left by the Pakistan Government in providing healthcare and education for its people. Pakistan is a not one of the poorest countries in the world - it is a lower middle income country with a weapons of mass destruction programme. Yet DFID still plans to double British bilateral aid to Pakistan.

39. Nevertheless, however critical our witnesses were of the failings of successive Pakistan governments to deliver development, all agreed that the UK should maintain a development assistance programme. We agree that DFID should have a bilateral programme in Pakistan which has an important strategic position in the world, strong ties with the UK and its stability and prosperity is currently in question.

40. It is for the Pakistan federal and provincial governments to shape reform programmes and institutions to improve public services and alleviate poverty. DFID has a role to play working alongside the federal and provincial governments.

41. DFID's development assistance should be conditional on the Pakistan authorities committing to and implementing economic reforms and policy changes that will foster inclusive economic and social development.

6   Ev 52 Back

7   Ev 52 Back

8   Ev 52 Back

9   Q69 Back

10   Ev 52 Back

11   Q26 Back

12   Ev 53 Back

13   Draft UN Humanitarian Operation Plan, Back

14   Ev 52 Back

15   Q32 Back

16   Q107 Back

17   Q108 Back

18   Q28 Back

19   Labour Force Survey, Q2 2012. The Labour Force Survey is a quarterly survey of more than 50,000 households, covering more than 100,000 people, that is designed to represent the whole of the resident UK population. Back

20   Q27 Back

21   Q43 Back

22   Q43 Back

23   Q25 Back

24   Q 66 Back

25   Pakistan a Hard Country, Anatol Lieven, p 21 Back

26   Purchasing Power Parity An economic theory that estimates the amount of adjustment needed on the exchange rate between countries in order for the exchange to be equivalent to each currency's purchasing power. In other words, the exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. Back

27   The Human Development Index is a composite statistic of life expectancy, education, and income indices to rank countries into four tiers of human development. Back

28   Q32 Back

29   Q30 Back

30   Pakistan A Hard Country, Anatol Lieven, Introduction Back

31   Ev 57 Back

32   Ev 57 Back

33   Coffey International Development in association with the IDL Group, Pakistan Country Governance Analysis 2011, April 2011 Back

34   Q2 Back

35   Q4 Back

36   Q37 Back

37   Q93 Back

38   Treasury Single Account: Concept, Design, and Implementation Issues, Sailendra Pattanayak and Israel Fainboim Back

39   Q94 Back

40   Q94 Back

41   Q88 Back

42   Ev 61 Back

43   Q89 Back

44   VAT efficiency is an index of how effective the tax is at raising revenue in any given country. A lower percentage could be attributed to the presence of many exemptions or reliefs in the VAT system, and/or a poor rate of collection. Back

45   Q97 Back

46   The Economist, Plugging leaks, poking holes. Who will pay for Pakistan's state? 8 December 2012 Back

47   The Center for Investigative Reporting in Pakistan, Representation without Taxation; An investigation of MP's income tax returns for 2011, Umar Cheema Back

48   The Economist, Plugging leaks, poking holes. Who will pay for Pakistan's state? 8 December 2012 Back

49   Q94 Back

50   Pakistan A Hard Country, Anatol Lieven, p 35 Back

51   Q5 Back

52   Q42 Back

53   Education for All 2011 Monitoring Report, The Hidden Crisis: Armed conflict and education,, p15 Back

54   Q8 Back

55   International Development Committee, Sixth Report of Session 2012-13: Afghanistan: Development progress and prospects after 2014 HC 403 para 41 Back

56   Pakistan on the Brink: The future of Pakistan, Afghanistan and the West, Ahmed Rashid p 21, 50-51 Back

57   Q119 Back

58   Q121 Back

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Prepared 4 April 2013