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.
Conflict
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]
Security
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]
Diaspora
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.
MIDDLE INCOME COUNTRY STATUS
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]
THE POLITICAL SYSTEM
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.
Corruption
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, http://pakresponse.info/ 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 http://www.imf.org/external/pubs/ft/wp/2010/wp10143.pdf 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, http://unesdoc.unesco.org/images/0019/001907/190743e.pdf,
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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