Looking Ahead: 2012 Aid Flows to Pakistan

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There are few countries receiving more global attention than Pakistan these days. The sixth most populous country in the world with over 170 million people, Pakistan has the second largest Muslim population after Indonesia. Well over one quarter and possibly over 40 percent of Pakistanis are classified as poor – a desperate situation often exposed by natural disasters such as the intense flooding that occurred in mid-2010, displacing over 20 million people.

Pakistan is at the center of the global war on terrorism and borders other mission-critical countries Afghanistan and Iran. Despite a difficult security and operational environment for development practitioners, it is also a hotbed of international development money and activity. Foreign aid, particularly American aid, however, is becoming increasingly contingent on Pakistan’s commitment to counterterrorism and each time a controversial diplomatic or military incident occurs, tensions rise and the debate over why and how aid money is being spent is reignited. That debate is perhaps more enflamed now than ever. The Pakistani government and public can at times view the U.S. and its allies as unreliable and self-interested partners, while more and more U.S. government and various donor officials question sending so much aid money to a country hampering the war effort in Afghanistan and supporting extremism. This past July, the U.S. suspended $800 million in military aid to Pakistan. Now, no matter what happens between the U.S. and Pakistan diplomatically, it is possible that U.S. aid to the Southwest Asian nation is slashed due to broader U.S. foreign aid budget cutbacks.

It remains to be seen how tensions between Pakistan and the U.S. will affect other major donors as we enter 2012. Last August, Pakistan forfeited $3.7 billion from the International Monetary Fund (IMF) which put Pakistan’s entire economy in peril. In the aftermath, the Asian Development Bank (ADB) announced that it will suspend budgetary support until the IMF evaluates and approves the health of Pakistan’s economy. The World Bank is likely to follow suit.

There are other important trends to consider as well. For example, less familiar donors, such as Turkey and the United Arab Emirates, are planning to maintain strong ties with Pakistan by continuing to provide significant development assistance. In the 2009-2010 time frame, Turkey reported $57 million in foreign aid contributions and the UAE claimed $85 million in foreign assistance. Following a decrease in its foreign aid budget and major changes to its aid program, the Netherlands has removed Pakistan from its partner country list and will no longer be providing measurable assistance. As government austerity spreads, other European bilateral donors could reevaluate their commitments to Pakistan.

Despite the uncertainty that has come to characterize Pakistan’s relations with donors, however, as of today it appears that foreign aid portfolios will remain intact and, based on Devex analysis, donor commitments are estimated to remain steady for 2012. While conditions and needs on the ground could change, the following are Devex projections of the top donors to Pakistan, as well as descriptions of their funding levels, priorities, and activities looking ahead to next year.

World Bank

For 2012, the World Bank has modestly toned down its ambitions for Pakistan after it spent only $4.6 billion of an original lending envelope of $6.5 billion. For the period of 2010-2013, the Bank projects lending up to $3.7 billion, accounting for more flexibility in programming that keeps pace with reforms pursued by the Pakistan government. For 2012, the Bank’s International Development Association (IDA) will be providing $1.3 billion, of which almost $1 billion will be directed to Pakistan’s education programs (especially in the Sindh and Punjab regions), while budget support and lending is projected at $300 million. The International Bank for Reconstruction and Development (IBRD) is projected to provide $200 million for the energy sector to improve electricity transmission and distribution. According to the Bank, overall bank lending will depend on macroeconomic and sector policy performance, and other economic and security conditions.

Asian Development Bank

The Asian Development Bank will maintain its annual average level of loans for 2012 at about $1.4 billion, based on planned assistance of $4.4 billion from 2009 to 2013. The regional development bank brings nearly a third of external resources for Pakistan’s electricity and power sector and, in 2010, it reportedly provided electricity access to 1.6 million households. In coordination with the IMF and World Bank, ADBwill support macroeconomic stability and provide loans to priority sectors such as energy (roughly 22 percent of total lending), agriculture and natural resources (16 percent), finance (15 percent) and public sector management (14 percent).

United States

Despite always unstable and deteriorating relations between the U.S. and Pakistan, the U.S. will continue to provide considerable aid and assistance in 2012. The Enhanced Partnership with Pakistan Act of 2009 (EPPA), also known as the “Kerry-Lugar-Berman” or “KLB” Act permits the U.S. to provide up to $1.5 billion annually in economic aid from 2010 to 2014. Of its total $3 billion aid package for 2012, the Obama administration is requesting that 46 percent go to economic assistance with a focus on the four key areas in line with the EPPA: energy, stabilization, social services (especially health and education) and economic growth (including agriculture). The bulk of requested appropriations fall under the Economic Support Fund, especially for macroeconomic growth initiatives to expand trade and investment and improve the financial sector ($930 million). The special overseas contingency operation (OCO) account will be protected from any budget slashes and will be largely invested in the Pakistan Counterinsurgency Capability Fund (PCCF) to provide “immediate and flexible aid” to help Pakistan security forces.

United Kingdom

British aid to Pakistan will remain approximately the same in 2012 at $425 million with the largest allocations set for education ($126 million) and reproductive, maternal and newborn health ($78 million). Furthermore, as part of the administration’s plan to increase British foreign aid and refocus priorities on fragile and conflicted-affected countries, foreign assistance to Pakistan is set to significantly increase to $638 million in 2013, with education receiving the largest increase ($347 million).

Japan

Japan will not reduce aid to Pakistan in 2012, planning foreign assistance contributions at $327 million for the next year. The Japanese government continues to focus on infrastructure, rural development and health. Among the largest projects signed by the Japanese government are reconstruction of rural roads in the Khyber Pakhtunkhwa region most damaged by the 2010 floods ($174 million) and support for polio eradication ($67 million).

European Commission

The European Commission’s contribution to development cooperation with Pakistan for the next year is projected at $82 million. The EC’s focus sectors will continue to be rural development and natural resources management in the poorer provinces of Khyber Pakhtunkhwa and Balochistan and education and human resources development across the country.

Germany

For 2011-2012, Germany pledged 90 million euros ($120 million) for Pakistan. Bilateral cooperation with Pakistan has a geographical focus in the areas of the Khyber Pakhtunkwha region, particularly in the Federally Administered Tribal Areas and Gilgit-Baltistan area. The German Development Agency, or GIZ is the lead implementing agency on the ground, carrying out specialized programs such as a national vocational training program ($56 million) as well as renewable energy, energy efficiency, good governance, and health care projects.

Canada

Since 2009, Pakistan is one of only 20 focus countries selected by the Canadian government with a projected $34 million allocated for 2012. The Canadian International Development Agency (CIDA) will continue to focus on children and youth programs, carrying out primary and middle school teacher projects to improve the quality of basic education in the country. Economic growth is the other priority sector, with a focus on increasing women’s economic empowerment.

Norway

Norway continues to provide modest but constant aid, with a budget of $13 million projected for 2012. Of this amount, 15 percent will be supplied for education, with a focus on primary and girls’ education. Norway’s development assistance is often applied through cooperation with other donors.

Aileen Cruz contributed to this report.

Read more:

  • How to Succeed in Pakistan Development Business: A Conversation with Shahid Kahn

  • USAID’s Pakistan Strategy: Partner With Local Government – A Conversation with Julie Koenen

  • In Pakistan, a New Capacity Building Flagship

  

About the author

  • Troilo pete%2520head

    Pete Troilo

    Former director of global advisory and analysis, Pete managed all Devex research and analysis operations worldwide and monitors key trends in the global development business. Prior to joining Devex, Pete was a political and security risk consultant with a focus on Southeast Asia. He has also advised the U.S. government on foreign policy and led projects for the Asian Development Bank and International Finance Corp. He still consults for Devex on a project basis.