WASHINGTON – Washington’s freeze on billions in military assistance toPakistan will have limited impact, thanks to its friendship with China anddiminishing importance of aid to the economy, observers say – but therecould be trouble if the US calls in its debts.
Exasperated by what it considers Islamabad’s neglect in cracking down onmilitancy, Donald Trump’s administration last week announced a suspensionof the aid, which also goes towards Afghanistan coalition funding.
“They give safe haven to the terrorists we hunt in Afghanistan, with littlehelp. No more!” President Donald Trump tweeted on New Year’s Day.
A senior official told AFP that up to $2 billion of equipment and fundingwas at stake.
However, with US aid declining significantly in recent years, the economyimproving and Beijing just a phone call away, sources told AFP the negativeeffects would be “marginal” in the short to medium term.
“International aid is not big in comparison with the (size of the)country’s economy,” one Islamabad-based diplomat said. “Means of pressureare limited.”
Former finance minister Hafeez Pasha says after the US invasion ofAfghanistan in 2001, aid increased substantially, approaching $3-4 billionannually at its peak in 2010.
“From there onwards, it’s been declining very sharply. Last year, it wasaround $750 million,” he said, a figure that when compared with the economy”is not a lot”.
Indirect weapon
But officials in Washington have also hinted to AFP that they have othercards to play – such as calling in vital IMF loans.
Pakistan’s economy is currently stable and growing, says senior World Bankeconomist Muhammad Waheed.
But it is also financed through the World Bank, the International MonetaryFund and the Asian Development Bank – all institutions to which Washingtonis a major creditor.
“There are structural issues like low tax revenues and growing tradedeficit, which government needs to tackle,” Waheed added, warning of alooming balance of payments crisis.
Pakistan’s foreign exchange reserves are sharply down, forcing the countryto borrow if it wants to continue to grow, analysts have said.
In December, Islamabad raised $2.5 billion in international bonds, atransaction described as “successful” by Waheed.
But Washington’s power gives it an indirect weapon to wield over Pakistan,warned security analyst Rahimullah Yousafzai. “It can use its influence inthe UN Security Council, IMF, World Bank, Asian Development Bank,” he said.
The Washington-based IMF has bailed out Pakistan before, with an $11.3billion loan package in 2008 to stave off a balance of payments crisis in adeal Islamabad abandoned in 2011.
The country received a second $6.7 billion IMF bailout package in 2013.
The China card
“Pakistan needs the support of the United States… because the US is amajor shareholder of those organisations,” agreed Ashfaque Hasan, aneconomist on Pakistan’s economic advisory council.
He recalled that in 1998 the IMF imposed a $20 million fine on Pakistan,hit by a credit freeze after its nuclear tests.
But weeks after the September 11 attacks on the US, the IMF released $135million for Pakistan as it aligned itself as a major ally of Washingtonahead of the US invasion of Afghanistan.
Now, however, Pakistani officials appear to believe they also have theirlong and growing friendship with China to play.
“If the US starts to bully, blame, threaten, we have other options,” saysSenator Mushahid Hussain Sayed, referring to China, which rushed to defendPakistan’s track record on militancy after the US announcement.
Questions remain over how much Beijing, which is already investing some $60billion in Pakistani infrastructure projects and which has a horror ofIslamist militancy on its borders, would be willing to prop up its”all-weather” friend.
But Sayed was bullish. Suspending aid, he said, is “a failed formula”.