International debt and dependence

Chapter 6: A. Hamid Shahid

 Foreign Assistance

• Foreign assistance is aid given by the foreign countries to other

countries to support global peace, security, and development
efforts, and provide humanitarian relief during times of crisis.

• Assistance to foreign nations ranging from the sale of military

equipment to donations of food and medical supplies to aid
survivors of natural and manmade disasters.
 Concept of Foreign Assistance
• Gants
• Development loans
• Official loans
• Foreign private investment
• Tied and untied loans
• Bilateral and multilateral loans
• Financing of BOP
 Importance of foreign aid to Pakistan
1. Remove paucity of capital

2. Removal of technological backwardness

3. Construction of infrastructure

4. Establishment of key industries

5. Exploration of natural resources

6. Raising the level of employment

7. External and internal economies of scale

8. Economic and social changes

9. Removal of BOP deficit

10. Increased govt. revenues

 Debt and its types

Two types

1. Internal/domestic debt

2. External/ foreign debt

Causes of increase in debt burden and debt servicing charges
1. Borrowed from external sources

2. Nature of aid goes on to change.

3. Tight conditions

4. Borrowing without cost benefit analysis

5. Low saving and limited taxable capacity

Causes of increase in debt burden and debt servicing charges
6. Compound interest rate is charged

7. Devaluation

8. Budget deficit

9. Imports are not matching exports: external deficit is increasing

 Measures to reduce external debt burden
1. Increase in Foreign exchange earnings

2. Cutting of non-developmental expenditures

3. Stability in external value of the currency