Analysis against Foreign Aid

Increases Debt Burden:

Foreign aid increases the debt burden on the economy. With more debt, a country is not viewed stable by the external world. Moreover, it increases the risk of default.

Increases Corruption:

In a developing country, if the government is not honest, then there is extreme possibility of corruption and wastage of resources. Corruption in foreign aid worsens the situation for any developing country which is already in need of finance.

Increases Inflation:

To retire debt and to pay interest on debt, the government increases money supply which increases inflation in the economy.

Increases Non-Development Expenditure:

The expenditure on retiring debt and paying interest on debt come under the bracket of non-development expenditure. A high non-development expenditure leaves little for expenditure on development.

Political Dependency:

A borrowing country will not only be indebted with money but also with political favors which it is supposed to provide for the loan providing country. Therefore, the foreign policy of a country remains in the hand of those loan providers and we remain at the mercy of their intentions.

Increases Stagnation:

Foreign aid increases stagnation. It decreases the desire and motivation to become independent. If a country becomes addicted to the foreign air, then it is very likely that in the long run, it will become dependent.

Idle Resources

Most of Countries has a lot of idle resources which are mot utilized for various reasons. With no water available in certain lands, they remain un utilized. Disputed lands also remain un utilized. Natural resources can't be extracted due to lack of advance technology. Due to unemployment, human resources remain un utilized.

Contract Of Affreightment

A contract of carriage of goods by sea is called as contract of affreightment. It is a contract by which a shipowner under takes to carry the goods of another in consideration of a price called "Freight". A contract of affreighment may take the form of charter party; or a bill of lading. The rights and liabilities of powers to such a contract are ground by the carriage of goods by Sea Act 1995 and the Bill of Lading Act 1856.

To Achieve Balanced Growth

Pakistan is historically an agricultural country. About 50% of the population is connected with agriculture. Historically, agriculture sector has had a dominant share in GDP. One major objective of economic planning is to achieve balanced growth in the economy by achieving growth in all sectors of the economy.

Money is a Store of Value

Money is a medium of exchange as well as a store of value. People not only demanded money to buy, they also demand money to save. In other words, all money is not used as a medium of exchange, some is also used as a store of value. While money is used with two different characteristics, it can never bring an exact proportional effect on prices.

Inefficient Debt Management

Debt Management is one of the most important function in the banking industry. But, in nationalized banks, there was no set criterion and mechanism through which loan was granted. This led to a huge increase in bad debt in the loan portfolio of these banks.

Consumers Suffers:
Consumers suffer from the hands of public sector monopoly. They don't have choices and substitutes and they have to remain satisfied with whatever quality they are provided and whatever price they are charged with against goods and services.

Insecurity of Job

Employees always live under the fear that they can be fired anytime. They have no security to the tenure of job. Moreover, with the recent privatization policy, employees are having a lot of uncertainties going into their minds.

Expenditure of PSDP

PSDP stands for Public Sector Development Program. Under this program, government allocates about 20% to 25% of  the budget to PSDP for improving infrastructure, rural development, more health facilities etc.

Foster Competition

Privatization is undertaken with an objective to increase competition by giving private sector an equal opportunity to compete with due the public sector. This will reduce the monopoly power that rests with public sector units.

Increase in Oil Prices

The recent oil shock which saw oil prices touching $70 per barrel has put a huge pressure on the imports. The value of imports has rapidly increased due to increase in oil prices. This has created adverse balance of payment situation for the country.

Resistance to Change

Unions always resists change whether it is good or bad change. It hs become a culture to appose everything without making an appropriate evaluation of the process. It an employer wants to introduce any technological advancement in the production process. the union members will always see it as n indication of forthcoming downsizing.

Easy to Manage and Administer

Cottage and small scale industries are short in size. They are easy to manage due to the following reasons:

• Not many people are involved.
• Not a very large premise of work.
• People involved are usually trusted friends or family members.
  

Collective Bargaining

Government made it necessary that every factory must have a trade union which elects a CBA (Collective Bargaining Agent). Collective Bargaining Agent puts forward the stand and concerns of workers to the employers and it tries ti bridge the communication gap between employer and workers. The presence of CBA enables workers to have their say.

Providing Microfinance

Government is also providing micro finance facility to farmers and low income group so that can earn their livelihood respectably. Micro finance schemes are very popular around the world and it is hoped it will prove useful in poor countries is well.

Low Efficiency Level

Efficiency levels in nationalized industries is very low. it is a repeatedly proven fact that we take less interest in any activity in which we have no stake than in activities in which we have a stake. The employees in the public sector units have no stake in the affairs of the business and hence their efficiency level is very low. Privatization promises to increase the efficiency level automatically because the management will have a stake in the business.

Lack of Communication

Farmers living in the villages and less privileged areas have very little knowledge of the level of demand in the market for a particular product at a given time. Therefore, if they bring in more quantity of a good than what is demanded, they will have to sell at a lower price because of the perishable nature of agriculture goods.

Reduces Inequality of Income

In a developing economy, even the government has insufficient resources. Therefore, any change in the economic redistribution of resources can only be made through more production. Foreign aid facilitates a developing economy to increase its production and reduce income inequality.

Providing Industrial Finance

In establishing any industry, one needs a huge amount of finance. Large industrialist can get finance for establishing another industry, but a middle class person will find it very difficult to acquire a loan for establishing a small industry. Therefore, government has to make sure that every prospective industrialist foes not fail to establish an industry due to lack of finance.

Population Growth and labor force

If the rate of population of growth and the growth in labor force is equal or is close to equal, then population growth is not much of a problem. This will suggest that dependent population is not very high and the number of people willing and capable of work are also increasing.

Dispute Over Land

There are a lot of dispute over land in the rural areas due to which the ownership of the land remains undecided. During the dispute, the land remains un utilized and it is complete waste of land resource. Moreover, dispute also arise between the heirs for the just distribution of inheritance.

Improve supply chain Cycle

Due to use in technology, various processes are expedited and thge amount of time used in a particular activity decrease. Moreover, the work is not stuck somewhere if there is a problem in natural conditions. For example, if there is not tain in a given season, water from other fields and areas can be brought in through tube wells.

Steps to Increase Capital Formation

Following steps are suggested for expediting the process of capital formation in Country.

• Developing Capital Market
• Increasing people's trust in capital markets.
• High imports duty on luxurious items
• Offering high rate of return on saving schemes
• Increasing FDI in Country
• Utilization the labor in productive activities
• Increasing high rates of return on money market instruments.

Involuntary Savings

Involuntary are savings affected indirectly by the actions of the government. If government increase the rate on saving schemes, it will increase the involuntary savings. If the government increases the GS or other taxes on luxurious goods, it will decrease their consumption and increase savings.

Food Provision

We, being the agricultural country, are compelled to import food gains from other countries. The countries from where we import food gains exploit our weakness. If agricultural sector develops, Pakistan and India can be sufficient in food supply and we would be free economic slavery of other developed countries.

Supplier or Labor

Agriculture sector supplies the labor also to the different sectors of the economy because the dominant portion of the total population is settled in the rural areas. Since the agriculture sector is not capable to absorb the available total supply of workers therefore it faces problem of unemployment. The problem of over population can be controlled by transferring this surplus labor of rural areas can be transferred to the manufacturing sector. The transfer of surplus labor would also cater the need of labor in the industrial sector.

Low Employment Generation

Since nationalized economy doesn't allow private sector to come and compete, the level of employment doesn't increase much. With the increase in capital investment through privatization more and more industries will be set up and this will definitely increase the level of employment in country.

Increase in Velocity of Money is Ignored

This theory ignores any increase in velocity of money altogether. If velocity of money in circulation is 5 and quantity of money is 100. It means that 100 Rupees change 5 hands and 100 Rupees creates 500 Rupees worth of transactions in the economy. Now, if quantity of money increase to 200, both the velocity and amount of money transactions should increase.

Income Effect on Price

Price Increase due to a lot of factors. It doesn't only increase with the increase in quantity of money. In the time of great depression in America, people had low incomes. The increase in quantity of money didn't increase prices because of the low income of the people. Therefore, prices are also affected with the level of incomes because it determines the purchasing power of people.

Increase In disparity Between Rich and Poor Countries

International trade widens the gap between rich and poor countries. Poor countries merely become markets for the products of rich countries. Poor countries export very little and have to import more goods than very export. Therefore, they almost always face adverse balance of payments.

Comparative Loss

Comparative advantage rests with developed and industrial countries who are usually rich in resources. Rich countries have access to technology and adept labor which can produce a good cheaper than people working on old methods in developing counties. This furthers the difference between rich and poor countries.