I= AID EFFECTIVENESS, DEBT CAPACITY AND DEBT MANAGEMENT IN THE ECONOMY OF PAKISTAN
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Title of Thesis
AID EFFECTIVENESS, DEBT CAPACITY AND DEBT MANAGEMENT IN THE ECONOMY OF PAKISTAN

Author(s)
Muhammad Ishfaq
Institute/University/Department Details
Department of Economics/ Quaid-i-Azam University
Session
2004
Subject
Economics
Number of Pages
179
Keywords (Extracted from title, table of contents and abstract of thesis)
aid effectiveness, debt capacity, debt management, pakistan, foreign aid, economic growth, income equality, poverty, debt burden, debt servicing, debt retirement, external borrowing, loan packages

Abstract
This thesis analyzes the role of foreign aid in the economy of Pakistan in terms of its effects on economic growth, income equality, poverty and the debt burden. It also evaluates Pakistan's debt servicing and debt retirement capacities and its debt management practices. The thesis finds that foreign aid has not contributed favorably to GDP growth and income equality, though it has been effective, in a limited way, in reducing the extent of poverty. The ineffectiveness of aid can be attributed to indirect diversion of aid funds to non-productive activities and inefficiency in resource allocation especially in the public sector associated with the easy availability of foreign aid. However, the study argues that foreign aid has been instrumental in supporting the growth rate in consumption that otherwise would not have been possible. Furthermore foreign aid and external borrowing made it easier to avoid hard policy choices such as heavy taxation of income and consumption.

The thesis finds that Pakistan's long-run debt-servicing capacity is extremely low, primarily due to low savings and productivity. It is further observed that with the current state of savings and productivity, Pakistan has to choose between sacrificing growth and prolonging the unsustainable position of continuously growing debt burden.

The thesis concludes that the practice of reliance on foreign aid is unsustainable unless efforts are made, on continuous basis, to overcome the basic weaknesses in the economy. Pakistan must improve its saving rate by continuing and even further refining the ongoing process or tax reforms, down sizing of the public sector and privatization of public sector enterprises. Pakistan needs to improve its overall productivity in the economy, especially in the public sector. The privatization process needs to be accelerated for the sake of minimizing the cost of losses in the public sector and improving productivity rather than revenue generation. Pakistan also needs to manage its debt in a better way. There is utmost need for enrichment of the intellectual capacity in the public sector institutions responsible for debt management. These institutions also need to be reformed thoroughly and given sufficient autonomy.

Finally, the thesis concludes that Pakistan has to be selective in choosing among the alternative aid and loan packages. External borrowing has to be target specific and the targets have to be specified in the light of a social welfare function that assigns due weight to social as well as economic considerations such as growth enhancement, promotion of equity and social justice and eradication of poverty. External borrowing must be undertaken within the framework of economic plans rather than making the planning exercise contingent on the availability of external resources.

Download Full Thesis
3108.65 KB
S. No. Chapter Title of the Chapters Page Size (KB)
1 0 Contents
188.98 KB
2 1 Introduction 1
71.77 KB
3 2 Review Of Selected Past Studies 6
330.11 KB
  2.1 Aid Definition 6
  2.2 Aid Effectiveness 8
  2.3 Absorptive Capacity, Debt Capacity And Debt Management 18
4 3 Foreign Aid And Economic Growth In Pakistan -An Overview 26
686.86 KB
  3.1 Introduction 26
  3.2 Fifty Years Of Pakistan 's Economy 28
  3.3 Foreign Aid Volume, Sources And Types 46
  3.4 The Role Of Foreign Aid In Internal And External Balance 51
  3.5 Appendix III 56
5 4 Aid Effectiveness: The Case Of Pakistan 58
646.08 KB
  4.1 Introduction 58
  4.2 A Model Of Foreign Aid And Growth 60
  4.3 Data, Results And Discussion 70
  4.4 Granger Causality Test 80
  4.5 Foreign Aid, Poverty And Income Inequality In Pakistan 82
  4.6 Appendix IV 90
6 5 Debt Indicators, Debt Servicing Capacity And Debt Management In Pakistan 94
727.09 KB
  5.1 Introduction 94
  5.2 External Debt And Liabilities Of Pakistan 95
  5.3 Debt Burden Indicators 98
  5.4 Debt-Servicing Capacity Of Pakistan 105
  5.5 Debt Management In Pakistan 110
7 6 Economic Model Of Debt Retirement 130
376.64 KB
  6.1 Introduction 130
  6.2 The Simple Model With No Service Payment 131
  6.3 The Model With Interest Payments 143
  6.4 Appendix VI 152
8 7 Conclusion 155
122.85 KB
  7.1 A Summary Of Findings 156
  7.2 References 163