A halt to US aid reimbursement into Pakistan’s treasury is unlikely to immediately affect the economy, but could have long-term negative impact, analysts said on Tuesday. The US has confirmed it is holding off nearly one-third in security aid to show displeasure over Pakistan’s cutback of American military trainers and other irritants such as limits on visas for US personnel.
The announcement put in question $300 million in what’s called Coalition Support Funds (CSF), which are paid into the general treasury and are considered Pakistan budget revenue. In addition, a separate $500 million in US military aid is in question.
“The $300 million is not a big amount so it’s something that can be easily made up,” said Sakib Sherani, former economic adviser to the Finance Ministry. “It’s the signal which potentially could have some negative bearings.”
The $300 million in CSF funds is equivalent to about 25 billion rupees, or less than one percent of the total budget of 2.76 trillion rupees that Pakistan has set for the fiscal year that began July 1.
“The decision to delay $300 million in CSF will not have any direct impact, but it signals further straining of relations between the US and Pakistan and that could risk spreading into something broader, for instance the IMF negotiations,” said Asif Qureshi, director at Invisor Securities Ltd.
The US support was pivotal to securing an agreement in November 2008 for the International Monetary Fund to loan financially-strapped Pakistan $11 billion and stave off a balance-of-payments crisis. Its economy has since been propped up in part by this loan.
In August 2010, the IMF stopped releasing funds because of Pakistan’s patchy implementation of fiscal reforms the government promised to carry out.
IMF and Pakistani officials are due to meet this month to discuss the possible release of the sixth tranche, though no official date has been decided.
Holding back CSF payments will not directly hurt the military, but could strain the country’s finances further and widen the fiscal deficit.
