After years of largely being ignored in Washington policy debates, Pakistan’s “other” threats – energy and water shortages, dismal education and healthcare systems, and rampant food insecurity – have finally moved to the front burner.

For several years, the Woodrow Wilson Center’s Asia Program has sought to bring these problems to the attention of the international donor community. Washington’s new determination to engage with Pakistan on its development challenges – as evidenced by President Obama’s signing of the Kerry-Lugar bill and USAID administrator Raj Shah’s comments on aid to Pakistan – are welcome, but long overdue.

The crux of the current debate on aid to Pakistan is how to maximize its effectiveness – that is, how to ensure that the aid gets to its intended recipients and is used for its intended purposes. Washington will not soon forget former Pakistani president Pervez Musharraf’s admission last year that $10 billion in American aid provided to fight the Taliban and al-Qaeda was instead diverted to strengthen Pakistani defenses against archrival India.

What Pakistani institutions will Washington use to channel its aid monies? In recent months, the U.S. government has considered both Pakistani NGOs and government agencies. It is now clear that Washington prefers to work with the latter, concluding that public institutions in Pakistan are better equipped to manage large infusions of capital and are more sustainable than those in civil society.

This conclusion is flawed. Simply putting all its aid eggs in the Pakistani government basket will not improve U.S. aid delivery to Pakistan, as Islamabad is seriously governance-challenged.

Granted, Islamabad is not hopelessly corrupt. It was not in the bottom 20 percent of Transparency International’s 2009 Corruption Perceptions Index (Pakistan ranked 139 out of 180), and enjoyed the highest ranking of any South Asian country in the World Bank’s 2010 Doing Business report.

At the same time, the Pakistani state repeatedly fails to provide basic services to its population – not just in the tribal areas, but also in cities like Karachi, where 30,000 people die each year from consuming unsafe water.

Where basic services are provided, Islamabad favors wealthy, landed, and politically connected interests over those of the most needy – the very people with the most desperate need for international aid. Last year, government authorities established a computerized lottery that was supposed to award thousands of free tractors to randomly selected small farmers across Pakistan. However, among the “winners” were large landowners – including family members of a Pakistani parliamentarian.

Working through Islamabad on aid provision is essential. However, the United States also needs to diversify its aid partners in Pakistan.

For starters, Washington should look within civil society. This rich and vibrant sector is greatly underappreciated in Washington. The Hisaar Foundation, for example, is one of the only organizations in Pakistan focusing on water, food, and livelihood security.

The country’s Islamic charities also play a crucial role. Much of the aid rendered to health facilities and schools in Pakistan comes from Muslim welfare associations. Perhaps the most well-known such charity in Pakistan – the Edhi Foundation – receives tens of millions of dollars each year in unsolicited funds.

Washington should also be targeting venture capital groups. The Acumen Fund is a nonprofit venture fund that seeks to create markets for essential goods and services where they do not exist. The fund has launched an initiative with a Pakistani nonprofit organization to bring water-conserving drip irrigation to 20,000-30,000 Pakistani small farmers in the parched province of Sindh.

Such collaborative investment is a far cry from the opaque, exploitative foreign private investment cropping up in Pakistan these days – particularly in the context of agricultural financing – and deserves a closer look.

With all the talk in Washington about developing a strategic dialogue with Islamabad and ensuring the latter plays a central part in U.S. aid provision to Pakistan, it is easy to forget that Pakistan’s 175 million people have much to offer as well. These ample human resources – and their institutions in civil society – should be embraced and be better integrated into international aid programs.

While Pakistan’s rapidly growing population may be impoverished, it is also tremendously youthful. If the masses can be properly educated and successfully integrated into the labor force, Pakistan could experience a “demographic dividend,” allowing it to defuse what many describe as the country’s population time bomb.

A demographic dividend in Pakistan, the subject of an upcoming Wilson Center conference, has the potential to reduce all of Pakistan’s threats – and to enable the country to move away from its deep, but very necessary, dependence on international aid.

Michael Kugelman is program associate with the Asia Program at the Woodrow Wilson International Center for Scholars.

Photo Credit: Water pipes feeding into trash infected waterway in Karachi, courtesy Flickr user NB77.