Foreign Aid, Blessing or a Curse??

Many studies have shown a negative correlation between economic growth and natural resources, a finding often dubbed “the curse of natural resources.” However, oil and other minerals may not be the biggest curse in developing countries. In many of them, the amount of foreign aid is a far larger share of government revenues. In Burkina Faso, for example, aid accounted for two-thirds of the government budget and 8% of GDP over the period 1985-89. In Mauritania, it accounted for 60% and 22%, respectively, for the period 1980-84. In Rwanda, Vanuatu, Gambia, Niger, Tonga and Mali, foreign donors provided over a third of the government budget during some 5- year periods between 1960 and 1999. Some countries are chronically dependent on aid. Aid accounted for 40% of the government budget and 6.2% of GDP in Burkina Faso during 1960-1999. In Mauritania, for 37% and 12%, respectively. In “The curse of aid”, The World Bank scholars Simeon Djankov, Jose G. Montalvo and Marta Reynal-Querol surveyed data from more than 100 countries over four decades. They also found that aid tends to supplant growth and makes countries quantifiably less democratic. They compared aid with petroleum wealth. Based on their research, they determined, “aid is a bigger curse than oil. It is a well known fact that foreign aid, granted and channeled through the IMF, World Bank, USAID and similar organizations, comes with strings attached. A huge portion of such loans goes back to donor countries in form of remuneration for various consulting and support services provided by companies and firms, commonly known as the Corporatocracy. The News reported about Federal Bureau of Revenue (FBR) hiring 89 foreign consultants of IMF, each paid $30,000 per month (Rs2.41 million). Consultancy cost might go up as two foreign consultants already working at the FBR since January 2007 have been given extension after they were paid Rs40 million by March 2009. The consultancy fee is expected to increase by Rs20 million.