Impact of Foreign Aid and IMF Programme on Economic Growth in Pakistan

Abstract

Foreign aid has been recognized as an important source of external financing in developing countries. Considering the significance of foreign aid in Pakistan, present study has attempted to empirically analyse the impact of foreign aid and IMF programme on economic growth in Pakistan. The Autoregressive Distributed Lags (ARDL) technique has been employed to estimate the model using . time series data from 1975 to 2020. The study finds that foreign aid exhibits a negative impact on economic growth both in the short run as well in the long run. The study further reveals that loans have a negative, while the grants portray significantly positive impact on economic growth. Similarly, in long run role of IMF is positive for economic growth of the country, however, in the short run, its impact is negative. The major policy implications for the government of Pakistan is to avoid foreign economic assistance and rely on, internal resource generation by increasing its revenue. Foreign aid requires an efficient external debt management and its payment obligations at the lowest possible cost consistent with a prudent degree of risk.