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

It has become fashionable, during the past decade, to studythe problem of foreign aid in terms of projection of aid requirements.Foreign aid is typi¬cally justified in the donor countries as acommitment to achieve a specific development objective having a finitecost. For the developing countries, on the other hand, the"requirements" approach helps to focus attention on the inadequacy ofthe existing levels of foreign aid and gives concrete shape to theirdemands for more assistance1. While projections have served a usefulpurpose by indicating the broad orders of magnitude of aid requirementsand suggesting some criteria for aid allocation, they are, by their verynature, based on a number of simplifying assumptions about the behaviourof certain key relationships in the economy. Savings, importsubstitution and the choice of technology cannot really be treated asindependent of the volume and form of foreign assistance. Thelimitations of aid projections, which generally do so, are obvious tothose who make them and those who use them. Justification for thecontinuing interest in such estimates lies in the "ceteris paribus"assumption so commonly made in economic analysis. By the same token, onemust exercise substantial caution in drawing policy conclusions fromthose estimates2