Three days before the current financial year ends, the US has delayed the release of funds meant to fight militancy amid reports that it has threatened to cut off Pakistan’s civil and military aid.
Pakistan was expecting $500 million (Rs43 billion) in the last tranche of the Coalition Support Fund (CSF), which was set up by the US Congress after the 9/11 attacks to reimburse allies for costs in supporting the US-led war on militancy. On April 25, Finance Minister Abdul Hafeez Shaikh had announced after a visit to the US that the Obama administration was “firmly committed” to releasing at least $500 to $600 million by June 30.
A finance ministry official said that the US Congress is yet to clear the transaction.
This is the second major setback to Pakistan’s besieged economic managers who seem to be struggling to keep the budget deficit below six per cent of total Gross Domestic Product (GDP). Earlier this week, government efforts to issue exchangeable bonds worth $500 million went in vain as international investors advised Islamabad to wait for a suitable time. Following these two events, budget deficit can now increase by 0.4% of GDP.
Release of CSF money has been marred by mistrust as US officials believe Pakistan overstates expenses it incurs. For the outgoing financial year, Islamabad had budgeted Rs133.5 billion ($1.4 trillion) but so far, it has only gotten Rs68 billion ($743 million). For the next fiscal year, the government expects to get Rs118 billion, of which Rs50 billion have been allocated to the armed forces in line with an understanding between the army and the finance ministry that 60% of CSF disbursements will go into civilian accounts and 40% to the army.
A finance ministry official said outstanding matured CSF claims stand at $1.8 billion (Rs155 billion). The Pentagon is also scrutinising another $1.7 billion, making total outstanding disbursements $3.5 billion.
The ministry’s official spokesperson Rana Assad Ameen believes the government will be able to restrict the deficit. He said the central bank will provide Rs185 billion and provinces will generate 110 to 115 billion rupees, which will be enough to restrict the yawning deficit.
Ameen said the Federal Board of Revenue is expected to surpass its revised revenue target of Rs1.5 trillion. Until June 25, the board had collected Rs1.47 trillion.
US threatens funds cut
Meanwhile, the US has threatened to cut off civil and military aid after Pakistan launched a crackdown against the “Central Investigation Agency (CIA) network” and appears reluctant to go after one of the deadliest Afghan insurgent groups in North Waziristan Agency.
Military and foreign office officials, all speaking on condition of anonymity, said the main reason behind the friction is Pakistan’s tough stance on the role of CIA operatives and its decision to reduce US footprint in the country as well as its refusal to launch a full-scale military offensive against the Haqqani network believed to be based in North Waziristan.
“The Americans are sending out all kinds of threats in recent days … they have even threatened to stop financial assistance,” a military official said.
He said the US is clearly upset over the recent crackdown launched against the CIA network in the country, following the Abbottabad raid that killed al Qaeda kingpin Osama bin Laden.
Pakistan’s military has confirmed the arrest of several people who are believed to be working for the CIA in a nationwide crackdown. However, at the same time, Pakistan reportedly has issued visas to over 60 CIA officials as part of the new arrangement between the two countries to conduct joint operations against ‘high value targets.’ Sources say visas were issued after US threatened to cut off military aid.
As part of ‘pressure tactics’, the Obama administration is also trying to ‘sideline’ Pakistan on the Afghan endgame and its recent peace overtures with the Afghan Taliban, said another official. “These are all pressure tactics. They (US) want us to accept things which we believe are not in our national interest,” he said.
He said Pakistan was preparing a ‘comprehensive response’ to US President Barack Obama’s announcement for the withdrawal of 33,000 US troops from Afghanistan by September 2012.
Published in The Express Tribune, June 28th, 2011.