The level and impact of aid dependencies vary from country to country. The World Bank and the IMF collectively have initiated a program called the Heavily Indebted Poor Countries (HIPC) initiative. This program is aimed at providing debt write-offs to poor countries with good policies. However, some argue that criteria for countries to be classified for HIPC initiative are not adequate enough to encompass all the countries that are deserving of the initiative. For example, many argue that Pakistan should be classified as a Heavily Indebted Poor Country and should gain the benefits of the Heavily Indebted Poor Countries Initiative, which it currently does not as it does not meet all criteria. Surprisingly, although Pakistan does not meet a lot of the criteria, is has a ratio of Net Present Value of Debt to exports much higher than the countries classified as HIPC do. In 2002, the NPV of debt-exports ratio was about 277% (Anwar, 2002). Since Pakistan meets some of the criteria, and not all, it is not given concessional interest rates on loans, which makes the debt situation much more difficult for Pakistan than other HIPC nations. However, a counter argument could also be made regarding the criteria of "poor countries with good policies". Many donors often criticize Pakistan for implementing poor policies via non-compliance to conditionalities. This places Pakistan in a very controversial position regarding its external debt situation.
Evolution of Aid Inflows in Developing Countries: Demand Side Factors
In developing countries, especially those classified as Heavily Indebted Poor Countries, lies a major paradox, i.e. these countries become classified as such after twenty years of borrowing, debt relief and concessional lending. This suggests that merely a few loans or debt restructuring cannot solve problems for developing countries so quickly so as to also have a sustainable effect on the economy of the country. "In Haiti, an HIPC, the ratio of foreign debt service to exports has reached 40%, well above the 20-25% thought to be 'sustainable'," (Easterly, 2002). However, this is largely due to the fact that Haiti used its debt accumulation, not to finance production and investment, but to add to the government's expenditure on themselves, their army and their police. This is also apparent in the case of Pakistan, where corruption and aid fungibility is a core problem of the entire system. Unfortunately, this is not a new phenomenon. "From the two Greek city-states who defaulted on loans from the Delos Temple in the fourth century BC to Mexico's default on its first foreign loan after independence in 1827 to Haiti's 1997 ratio of debt to exports of 484%, debt servicing difficulties have been a feature of the world economy throughout history," (Easterly, 2002). One of the reasons why loans end up having negative effects on the economy is because when providing loans, the World Bank, IMF, and any other government assumes that after giving the loans to a borrowing country, that borrowing country will reach a level of sustainable growth and development. Recipient country's preparation for a loan that is meant to be utilized to improve economic situation, is usually not present. Borrowing countries usually lack proper infrastructure, such as a basic collection and analysis of local statistics. According to the World Bank, it takes developing countries at the very least 2 years to create a comprehensive strategy that is needed to implement changes as per the terms of a loan. Unsustainable debt burdens are unlikely to be lessened without debt relief,