The recent uncertainties about aid flows have underscored the
need for achieving an early independence from foreign aid. The
Perspective Plan (1,965-85) had envisaged the termination of Pakistan's
dependence on foreign aid by 1985. However, in the context of West
Pakistan alone the time horizon can now be advanced by several years
with considerable confidence in its economy to pull the trick. The
difficulties of achieving independence from foreign aid can be seen by
reference to the fact that aid flows make it possible for the
policy-maker to pursue such ostensibly incompatible objectives as a
balance in international payments (i.e., foreign aid finances the
balance of payments), higher rates of economic growth (Lei, it pulls up
domestic saving and investment levels), a high level of employment
(i.e., it keeps the industries working at a fuller capacity than would
otherwise be the case), and a reasonably stable price level (i.e., it
lets a higher level of imports than would otherwise be possible).
Without aid, then a simultaneous attainment of all these objectives at
the former higher levels together with the balance in foreign payments
may become well-nigh impos¬sible. Choices are, therefore, inevitable not
for definite places in the hierarchy of values, but rather for
occasional "trade-offs". That is to say, we will have to" choose how
much to sacrifice for the attainment of one goal for the sake of
somewhat better realization of another.
Discretionary Policy Interactions and the Fiscal Theory of the Price Level: A SVAR Analysis on French Data
