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

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