What US money means to Pakistan

Reuters reports hard numbers:

Pakistan’s economy could be hit if Washington holds back on the $300 million reimbursement from the Coalition Support Fund that Pakistan says it is owed.

Because it is reimbursements for money already spent on military operations, CSF monies go into the general treasury. So holding back these payments will not hurt the military, but would strain the country’s finances further at a time when it is battling a deep downturn.

The money was expected by June 30, and its delay has already bumped Pakistan’s fiscal deficit to 5.3 percent of gross domestic product for fiscal year 2010/11 (July-June), a finance ministry official said. With the CSF money, the deficit was anticipated to be 5.1 percent.

CSF money also supports Pakistan’s current account. Though the July-May current account is in surplus by $205 million, it may not be able to maintain the surplus in the long term because of rising international oil prices and lower prices for cotton, its main cash crop.

Pakistan received $632 million from the CSF in its 2010/11 fiscal year. Finance ministry officials were unavailable for comment.

(ET should learn from this.)

As far as India is concerned, this step is fraught with possibilities. If the US merely cuts military aid, without increasing civilian aid and trade opportunities, then that would allow China to step into the breach. Exchanging China for the US as the main support for the Pakistani military is clearly not in India’s interests.

Unfortunately, the US is now wrangling over a budget that will see deep cuts in the middle of an unbalanced political atmosphere. India’s options are limited, but it is clear that in this case economics has to play the lead role in foreign policy.