Any cut in security and economic aid from the US will have limited to no damage on Pakistan's economy as quantum of such aid given to Pakistan has substantially declined over the years, analysts said. After an anti-Pakistan tweet by the US President Donald Trump, Pak-US relationship has once again come under the spotlight, where potential cuts in economic and security aid and possible economic sanctions on Pakistan are being talked about.
"Since 2002, Pakistan has received $23 billion of security aid and $9.9 billion of economic aid from the US, totaling $33 billion during the past 16 years," Syed Atif Zafar at JS Global Capital said. The average security aid received by Pakistan during the first 14 years of this period (ie 2002-2015) was around $1.56 billion/year, whereas during the last two years the same average has declined to $590 million/year.
This security aid includes the Coalition Support Fund (CSF), which has declined from $1.5 billion in 2010 to $550 million in 2016 (disbursed in March 2017).
The US recently authorized $750 million in CSF to Pakistan, of which $350 million will only be available contingent upon certification of US Secretary of Defense.
In the last two years, two successive US Defense secretaries - Ashton Carter and James Mattis, refused to give such a certification, thus preventing the administration to release the funds.
Other than CSF, Pakistan can potentially receive $133 million in 2018 under different heads of security aid.
Economic aid not contributing much either: The average economic aid received by Pakistan during this 16 years period clocks in at $619 million/year, however during 2009-2013 the same averaged at $1.1 billion/year, which is now down to $392 million/year during the past four years.
Most of this economic aid falls under the categories of (1) Economic Support and Development Fund, (2) Global Health Program and (3) Food for Peace program. The US has budgeted for Pakistan $211 million of economic aid in 2018.
While cut in aid appears to have a nominal impact on Pakistan's economy, economic sanctions are likely to be a different ball game altogether, in our view. The influence of US on Pakistan's economy has lowered over the years, however loss of (1) 'still a substantial' export market, (2) potential Foreign Direct Investments (FDIs), (3) business opportunities with US allies and (4) potential bailouts by the IMF can be significant.
Decline in share, but increase in exports and imports quantum: The share in Pakistan's overall exports of US markets has declined to 17 percent in FY17 from 22 percent during FY04-07 period; however the overall quantum of exports to the US has increased to $3.7 billion in FY17 from $2.8 billion in FY04. Similarly the share in Pakistan's overall imports from the US has declined to 4 percent in FY17 from 7 percent in FY04, though the quantum has increased to $2.2 billion in FY17 from $975 million in FY04.
Similar story with Remittances: The same as trade statistics, share of Remittances from the US has declined to 13 percent compared to 32 percent, however overall quantum has jumped to $2.5 billion in FY17 from $1.2 billion in FY04.
FDI from US down to bare minimum: Encouraging at present but concerning otherwise, the share of FDI from the US in total FDI received by Pakistan has declined to 1.0 percent compared to historical average of 25 percent. Notably, the average FDI recorded during the last two years from the US was $29 million/year vis-a-vis historical average of $450 million/year and record investment of $1.3 billion in FY08.
What else has changed? The increasing influence of China on Pakistan: A day after President Trump's tweet, China defended Pakistan saying the world community should acknowledge its all-weather ally's "outstanding contribution" to counter terrorism.
"We continue to believe CPEC will be a game-changer for Pakistan as it will result in a massive boost in trading activity with Gwadar becoming the gateway to all major sea routes", Syed Atif Zafar said.
In FY17, Pakistan received $1.2 billion of FDI from China, ie 44 percent of the total FDI received during the year.
In a recent survey, 59 percent of the respondents are of the view that CPEC is likely to have a positive impact on Pakistan's economy while 18 percent thought otherwise.
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