© USIP 2014 • All rights reserved.

United States Institute of Peace • www.usip.org • Tel. 202.457.1700 • @USIP

UNITED STATES INSTITUTE OF PEACE

“Neither policy-reform nor 

cash-on-delivery assistance will 

bring simple or quick fixes ...

But these mechanisms have 

the potential to boost the 

effectiveness and streamline 

implementation of assistance 

in the public sector.”

July 28, 2014

Maximizing the Impact of Aid to Pakistan: 

Leverage Reform and Local Capacity

Richard Albright

E-mail: AlbrightRA@state.gov

PEACEBRIEF176

Pakistan is Too Big to Fail

Pakistan has suffered from decades of poor governance, corruption, weak state institutions 

and, more recently, violent conflict that has hindered the aspirations of its 180 million people 

and threatened stability within the country and region. The U.S. government’s history of 

stopping and starting assistance has harmed Pakistan’s development, undermined U.S. credibility and influence as a trusted partner and detracted from regional stability. U.S. interests in 

Pakistan span politics, economy, counterterrorism, development, human rights and democracy. 

Maintaining a robust, multidimensional relationship with Pakistan, and steady, long-term 

development, law enforcement and security assistance, can help Pakistan better achieve its 

potential and become a stabilizing force in the region. The transition in Afghanistan should 

deepen, not weaken, our interest in ensuring that Pakistan does not fail. 

Downward Glide Path

President Barack Obama’s fiscal year 2015 civilian assistance request for Pakistan, at $597 

million, represents the United States’s fourth-largest country program.1 But it also represents 

a further decline in civilian assistance levels for Pakistan since their 2010 peak of $1.5 billion, 

following passage of the Enhanced Partnership with Pakistan Act (known as Kerry-LugarBerman after its congressional sponsors). There are several reasons for this decline—and 

Summary

• The effectiveness of U.S. civilian assistance to Pakistan depends on sustained funding commitments from the United States and sustained commitment to economic and institutional 

reform from Pakistan. 

• Weak public institutions and poor governance have greatly impeded Pakistan’s development. U.S. assistance should focus on strengthening institutions systemically.

• Direct assistance to the Pakistani government—through financing that supports specific reform programs and policy initiatives and cash-on-delivery mechanisms that offer assistance 

after agreed performance criteria are met—could incentivize Pakistani public institutions to 

improve service delivery. 

• Pakistan’s devolution of authority to the provinces offers an opportunity for well-targeted 

and cost-effective initiatives to incentivize improvements in provincial public service delivery in such areas as basic education, health and policing.
© USIP 2014 • All rights reserved.

Maximizing the Impact of Aid to Pakistan: Leverage Reform and Local Capacity

page 2 • PB 176 • July 28, 2014

it is not necessarily a bad trend line if it leads to a sustainable plateau. Intense budgetary 

pressure in Washington has trimmed foreign assistance overall. Cumulative economic and law 

enforcement assistance appropriations to Pakistan, totaling $4.4 billion in the period of 2010–

14, generated large but largely unavoidable pipelines of undisbursed funding.2 

Policymakers, budget managers, aid implementers and overseers have rightly questioned 

the sustainability and impact of such large, single-country programs—both in terms of U.S. 

government implementation capacity and local absorption capacity. Short-term assignments 

of American personnel have further hampered implementation. Security concerns have forced 

increasing reliance on remote management of projects and could potentially reduce future U.S. 

staffing, further constraining oversight capacity. 

However, smaller budgets could actually lead to better prioritization, ownership, oversight 

and impact. The downward glide path presents an opportunity to refocus from a surge effort 

to stabilize Pakistan’s democratic transition and support its counterterrorism operations to a 

longer-term and more sustainable development partnership. 

Refocus on Sustainable Impact

The United States and Pakistan agreed in early 2011 on a five-sector strategy—energy, 

economic growth, stabilization, education and health—to guide U.S. assistance. This strategy 

delivered some major accomplishments, including increased electricity generation by over 

1,000 megawatts; 900 km of additional roads in regions bordering Afghanistan; 12,000 university scholarships; and post-flood reconstruction, among other programs.3

 But this strategy, 

which was focused on delivering rapid results across dozens of projects, was not designed to 

comprehensively address the daunting and long-term task of building the capacity of poorly 

performing government institutions. Currently, many of those institutions are failing to address 

Pakistan’s monumental development and governance challenges. 

Toward Country-Owned and -Led Development

Over the past decade, major donors and developing countries have shaped and adapted aid 

effectiveness principles at high-level meetings held at Paris (2005), Accra (2008) and Busan 

(2011).4 Donors committed to aligning their assistance behind recipient country-led strategies 

and to using existing country systems for the implementation of their aid, particularly with 

regard to public services. This commitment was meant to maximize the use of program 

and policy-based assistance, which aims to help governments improve their capability to 

implement programs and deliver services. Donors set a goal to channel at least half of their 

government-to-government assistance through country public financial management systems, 

where capacity and accountability mechanisms allowed, and to building that capacity where it 

was found lacking. 

The U.S. Agency for International Development, under the leadership of Rajiv Shah, 

endorsed these principles in its “USAID Forward” strategy and further defined USAID’s 

direction in its 2014 policy document, “Local Systems: A Framework for Supporting Sustained 

Development.” The latter document articulates a vision of development that is “locally owned, 

locally led and locally sustained.”5 It calls for addressing development challenges systemically 

in concert with local actors and international development institutions. In presenting the 

president’s fiscal year 2015 budget request, Shah noted that USAID had increased overall 
© USIP 2014 • All rights reserved.

Maximizing the Impact of Aid to Pakistan: Leverage Reform and Local Capacity

page 3 • PB 176 • July 28, 2014

funding for local partnerships from 8 percent of its budget four years ago to 40 percent now 

and that this could grow further. The objective is “to put ourselves out of a job” by building 

local capacity, he said.6 

As of 2013, USAID Pakistan channels more than 27 percent of its assistance through Pakistani 

government institutions, with the largest share funding energy and transport infrastructure 

investments implemented by several capable Pakistani public enterprises.7 However, relatively 

little U.S. assistance directly supports policy reform or government capacity to improve 

delivery of public services, such as basic education and public health. In these areas, much U.S. 

assistance funds projects implemented by nongovernmental organizations or international 

development firms. While these organizations may be able to deliver training and services, 

they often do so through parallel structures outside the government, which risks undermining 

government capacity and may not last once donor funding ends. 

This is where new approaches and experimentation are needed. The challenge is how to 

incentivize public institutions to deliver results. This can take different forms in different 

countries and situations, but evolving aid effectiveness principles suggest that policy-based 

finance, performance benchmarks and tying funding to specific achievements probably offer 

the most effective and sustainable forms of assistance. This is where the World Bank is heading 

with its Universal Health Coverage initiative.8 The Center for Global Development argues 

persuasively for a cash-on-delivery assistance model, which links donor funding disbursements 

to progress toward agreed results.9

The benefits of this approach are multifold. It puts governments in the driver’s seat to design 

and deliver public services, such as basic education and maternal and child health. In most 

cases local authorities and institutions can implement programs at far lower cost than external 

actors. Moreover, successful programs implemented by empowered local actors create a 

learn-by-doing dynamic, with the potential for scaling up. While building institutional capacity 

to deliver results is a slow process, there is, as Clare Lockhart of the Institute for State Effectiveness succinctly put it, “no shortcut to development that circumvents the citizens and governing 

institutions of the country.”10

What Pakistan Wants

While the Pakistani government has often failed to set, communicate and implement 

clear development priorities, it has consistently pushed donors to deliver their funds 

through government institutions. Pakistani Senator Sughra Imam Hussein convened an 

Institution Building Working Group, one of five activity clusters formed by the Friends of 

Democratic Pakistan multilateral policy dialogue in 2009, and examined how to improve the 

capacity of Pakistani institutions by promoting linkages between them and donor-country 

counterpart bodies. Her working group issued a report in 2013 with recommendations that 

paralleled the Busan and Paris declarations, calling for donors to build the capacity of 

existing government institutions over the long term and avoid creating new and parallel 

institutions, whose separate project structures and higher pay scales for government 

employees assigned to donor projects add to the already excessive size and cost of Pakistan’s 

government.11 Imam’s report concluded that in many cases donor capacity-building efforts 

consist primarily of training programs, which may benefit thousands of officials but prove 

ineffective if not part of a holistic effort to improve the capacity of the institutions that employ 

those individuals. 
© USIP 2014 • All rights reserved.

Maximizing the Impact of Aid to Pakistan: Leverage Reform and Local Capacity

page 4 • PB 176 • July 28, 2014

The previous and current Pakistani governments frequently expressed dissatisfaction with 

donor assistance, citing the high cost of international implementers, meager results, slow 

disbursement and a lack of capacity-building and sustainability. Pakistani officials bridled at the 

lack of control over how donor support was prioritized and spent, which they needed but often 

had limited ability to influence. Top officials in the previous government on several occasions 

urged the United States to allocate most, if not all, assistance funds to the Diamer Bhasha Dam 

project, which successive Pakistani governments have cited as the country’s top development 

priority. In parallel, they sought tariff-free access for Pakistani textiles to the U.S. market, which 

they viewed as more valuable than U.S. assistance.12 Asked about U.S assistance during April 8, 

2014, remarks at USIP, Finance Minister Mohammad Ishaq Dar referred to his Strategic Dialogue 

discussions with U.S. government counterparts, saying Pakistan sought increased trade and 

investment with the United States. He then emphasized the value of assistance from the World 

Bank and Asian Development Bank that finances government policy reforms, builds capacity 

of state institutions and supports strategic investments in energy and water management. 

Dar said that the government considered most valuable the assistance that advances its “4-E” 

priorities: economy, energy, education and counter-extremism. 13

Using Assistance to Leverage Reform and Performance

Pakistan’s 2013 International Monetary Fund (IMF) program and major new lending 

initiatives in 2014 by the World Bank and Asian Development Bank support critical reforms 

in tax and energy policy. They offer bilateral donors direction in developing programs to 

complement these reforms, as well as opportunities to cofinance them with these international 

financial institutions. The Japan International Cooperation Agency is cofinancing energy 

reforms with the Asian Development Bank. Other critical priorities for Pakistan, the IMF 

and donors include increasing tax and other revenue as a share of gross domestic product, 

reducing power subsidies and technical losses, better utilizing limited water resources and 

streamlining regional trade through tariff reduction and trade facilitation. In energy, the top 

U.S. assistance priority, policy and electricity pricing changes are needed to enable the cashstarved Water and Power Development Authority to finance new capacity and fully fund 

operations and maintenance. Using grant funds to incentivize reform could be a cost-effective 

way to improve the sustainability of Pakistan’s power sector and complement ongoing 

U.S. assistance. 

Through a 2010 constitutional amendment, Pakistan devolved authority for most basic 

government services from the federal government to the provinces. This sweeping 

devolution—unevenly implemented by provincial governments with varying levels of 

capacity—presents a particularly compelling opportunity for cash-on-delivery assistance to 

encourage improved service delivery in basic education, health care, policing and municipal 

services.14 As the three main provinces (Punjab, Khyber Pakhtunkhwa and Sindh) are run by 

opposing political parties, political competition adds another motivation to innovate. Welltargeted cash-on-delivery programs could incentivize mutually agreed, measurable and 

verifiable achievements in areas such as girls’ access to school, reading and math testing, 

maternal and infant mortality, immunization rates and community policing. The goal is to help 

the provinces innovate and build capacity to deliver rather than to use contractors to deliver 

services for them. Where needed and desired, donors could provide technical support to build 

provincial capacity. Donors could achieve efficiencies of scale by partnering on design and 

implementation in selected provinces. 
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Maximizing the Impact of Aid to Pakistan: Leverage Reform and Local Capacity

page 5 • PB 176 • July 28, 2014

A New Assistance Partnership

Neither policy-reform nor cash-on-delivery assistance will bring simple or quick fixes. Both 

would require careful design to develop realistic and tangible targets and measureable 

performance indicators against which funds could be disbursed. Neither can succeed 

without strong local buy-in and political commitment. Both would depend on multiyear 

funding and intense and direct engagement by U.S. government development professionals 

with local counterparts. But these mechanisms have the potential to boost the effectiveness 

and streamline implementation of assistance to the public sector. Both align with 

international best practices, USAID’s Local Systems framework and Pakistan’s desire for 

sustainable capacity-building. Cash-on-delivery is ideally suited to promote taking calculated 

risks in support of innovation, as donors would only fund agreed outcomes rather than 

inputs. 

By placing responsibility on Pakistani government bodies to achieve clearly defined, 

measurable targets, cash-on-delivery and policy reform aid have the potential to boost 

local buy-in and accountability, reduce overhead costs and deliver results with a lighter U.S. 

government footprint in Pakistan. These tools can enhance the effectiveness of U.S. civilian 

assistance and empower Pakistan’s institutions to perform, while creating a legacy of visible 

and sustainable partnership. 

Notes

1. U.S. Department of State, “Fiscal Year 2015, Congressional Budget Justification, Appendix 3: 

Regional Perspectives,” page 595, at www.state.gov/documents/organization/224070.pdf.

2. This figure includes appropriations from the Economic Support Fund, Global Heath and 

Child Survival, International Counternarcotics and Law Enforcement and the Non-Proliferation, Anti-Terrorism, Demining and Related Programs accounts. Fiscal year 2014 figures are 

estimates. Calculations derived from U.S. State Department, Congressional Budget Justifications, Fiscal Year 2012–2015, at www.state.gov/documents/organization/224070.pdf, www.

state.gov/documents/organization/185015.pdf, and www.state.gov/documents/organization/158268.pdf.

3. See www.usaid.gov/pakistan/our-work.

4. See “The Paris Declaration on Aid Effectiveness and the Accra Agenda for Action,” at www.

oecd.org/dac/effectiveness/34428351.pdf, and “The Busan Partnership for Effective Development Co-operation,” at www.oecd.org/dac/effectiveness/busanpartnership.htm.

5. See www.usaid.gov/usaidforward and www.usaid.gov/policy/local-systems-framework. 

6. See www.usaid.gov/news-information/speeches/

mar-04-2014-remarks-higginbottom-shah-fy2015-budget-request.

7. USAID Forward Data Tables, at www.usaid.gov/sites/default/files/USAID%20Forward%20

Data_Local%20Solutions.xlsx. 

8. See www.worldbank.org/en/topic/universalhealthcoverage/overview#2. 

9. See www.cgdev.org/initiative/cash-delivery-aid.

10. Clare Lockhart, “Fixing US Foreign Assistance: Cheaper, Smarter, Stronger,” 

World Affairs, January/February 2014, at www.worldaffairsjournal.org/article/

fixing-us-foreign-assistance-cheaper-smarter-stronger.
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11. Friends of Democratic Pakistan Institution Capacity Building Report, “Building a Better 

Pakistan,” 2013.

12. See, for example, remarks by then Foreign Minister Hina Rabbani Khar during a 

visit by then Secretary of State Hillary Clinton during meetings in Islamabad, October 2011, at www.state.gov/secretary/20092013clinton/rm/2011/10/175949.htm. 

This message was reiterated during a trip to Washington by Prime Minister Nawaz 

Sharif in October 2013; see www.whitehouse.gov/the-press-office/2013/10/23/

joint-statement-president-obama-and-prime-minister-nawaz-sharif.

13. See www.usip.org/events/pakistan-economic-and-stabilization-prospects.

14. Michael Kugelman, “Decentralisation in Pakistan: The Lost Opportunity of 

the 18th Amendment,” Norwegian Peacebuilding Resource Centre, November 2012, at http://www.peacebuilding.no/Regions/Asia/Pakistan/Publications/

Decentralisation-in-Pakistan-the-lost-opportunity-of-the-18th-amendment.

About This Brief

Richard Albright recently completed an interagency fellowship 

at the U.S. Institute of Peace. 

This paper is based on study 

during that fellowship and on his 

experience as a career foreign 

service officer. From 2011–13, 

Albright was the coordinator 

for civilian assistance at the U.S. 

Embassy in Islamabad, Pakistan. 

In prior assignments, he covered 

development assistance at the 

U.S. Embassy in Cairo, Egypt, and 

humanitarian assistance at the U.S. 

Embassy in Baghdad, Iraq. He also 

oversaw humanitarian programs as 

director for Asia and the Near East 

in the State Department’s Bureau 

of Population, Refugees and 

Migration. The views expressed 

here are solely those of the author 

and not necessarily those of the 

State Department or the U.S. 

government.