Foreign aid, economic development and the indebtedness problem, with special reference to the Sudan

Abstract

In the task of promoting both economic growth and development of the developing countries, both theory and development experience suggest that international co-operation in a broad sense has a vital role to play. For most developing countries, foreign trade is, and is likely to remain, the most important ingredient of such co-operation, although in the absence of a so-called new international economic order, its benefits may be smaller than most developing countries think to be equitable. But despite the overwhelming importance of trade, resource transfers from the more advanced and rich countries have a significant and in many cases, a decisive role as well to play in augmenting economic development. Resource transfers include foreign investment, financial aid and technical assistance. The present study principally examines the role of foreign aid - including both financial and technical assistance - in economic development with particular reference to the Sudan. This focus on aid is not intended to under-rate the significance of other forms of co-operation between advanced and developing countries in promoting the latter's development. This study falls into three main parts which together cover most of the principal issues related to foreign aid, and examine the situation in the Sudan. Part I is a critical review of the theoretical literature on aid and of the controversies that have arisen in the light of the different empirical investigations which have been attempted to establish its impact upon recipient economies. It also examines the rationale behind the provision of aid and the requirements which are to be satisfied if it is to be used effectively. Part II is an attempt to apply the conceptual framework of the previous part to an elucidation of the role of aid in the Sudan's economic development. It begins with a brief description of the structure of the Sudanese economy and a survey of the trends in available resources. In the light of this analysis, a number of key issues are examined: in particular the source, composition and end-use of aid funds; the significance of Arab capital; the structure of aid management, and the role of technical assistance in supplementing domestic skills. Apart from these largely qualitative appraisals, the study also attempts to apply Weisskopf's behavioural model to evaluate the contribution of foreign aid to the Sudanese economy. Part II includes an examination of the limitations of such econometric studies. Part III examines the so-called debt problem of developing countries and its extent. Since foreign aid is not wholly provided in grant form, its inflow into developing countries has been accompanied by a growing debt. Part III contains a critical appraisal of the indebtedness issue of developing countries in the light of recent debates. Its prime concern is, however, to identify the causes and to demonstrate the immediate as well as the long-term implications of debt difficulties. This is followed by a scrutiny of the debt position of the Sudan, using for this purpose both published and unpublished data. Finally, a concluding section summarizes some of the most important propositions arrived at in the dissertation.