US aid in Pakistan: Where's the money going?

5. What if the US cut aid?

US lawmakers have said the most likely targets for cuts would be civilian, not military, aid.

Cutting civilian aid would have only a 0.14 percent impact on Pakistan’s GDP growth, calculates Shahid Javed Burki, a former World Bank vice president.

But the real concern for Pakistan’s solvency would be loss of support from international lenders like the World Bank and International Monetary Fund (IMF).

“If the US pulls out of the relationship, the IMF and World Bank look to the US before deciding, and private investors will take a huge hit,” says Moeed Yusuf, South Asia adviser at the US Institute of Peace in Washington. “Pakistan won’t fail if aid disappears. But for a country in trouble, do you really want to isolate it?”

In 2008, the economy took a nosedive and the IMF kept it afloat with loans. Pakistan’s former representative to the IMF Board, Ehtisham Ahmad, said recently that the IMF was going to deny the bailout request until a last-minute intervention by the White House. (The IMF in Pakistan declined to comment.) “As long as the multilateral aid continues, it won’t impact Pakistan’s economy,” says Sartaj Aziz, a former finance minister.

A US official in Islamabad argues that yanking civilian aid would undermine the US message of a long-term commitment to Pakistan. It would also affect the civilian government’s ability to provide services, further undermining its legitimacy.

Rescinding military aid would involve a larger chunk of money, deepening the economic impact to the country. It would also lead to a cancellation of Pakistani military help along the Afghan border.

“Pakistan would say we are pulling out our troops. Handle this border yourself, but don’t violate the border,” says Imtiaz Gul, a strategic analyst in Islamabad. “I would only hope that better sense would prevail.”

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