HomeAsiaAfghanistanUS Aid Freeze Threatens Pakistan’s Economic Stability

US Aid Freeze Threatens Pakistan’s Economic Stability

The aid freeze could push Pakistan further into China’s economic orbit, altering regional dynamics and U.S. influence.

Secretary of State Marco Rubio

 The decision by the United States to freeze foreign aid worldwide, with exceptions for Egypt and Israel, marks a seismic shift in global diplomatic and economic relations. Announced via an executive order signed by President Donald Trump on January 20, 2025, this decision is one of the first sweeping actions of the Trump administration and could have profound implications for Pakistan, a country that has historically been one of the largest recipients of U.S. aid. Secretary of State Marco Rubio’s directive to halt aid disbursements for 90 days has sent shockwaves through Islamabad, sparking concerns over economic stability and political ramifications.

Israel and Egypt receive significant U.S. aid annually, with Israel getting approximately $3.8 billion, primarily for military purposes, under a 10-year agreement signed in 2016. Egypt receives around $1.3 billion in military aid annually. Their exemption from the aid suspension reflects their strategic importance to U.S. interests in the Middle East, particularly in maintaining regional stability, supporting peace accords, and countering threats from hostile entities in the region.

Over the past three decades, the United States has provided over $32 billion in direct assistance to Pakistan, with allocations fluctuating based on geopolitical priorities. From 2002 to 2010, during the height of the U.S. war on terror, Pakistan received nearly $19 billion, primarily for counterterrorism efforts. This included military aid aimed at bolstering Pakistan’s capacity to combat extremism within its borders. The 2009 Enhanced Partnership with Pakistan Act, known as the Kerry-Lugar-Berman Act, injected $7.5 billion over five years into non-military initiatives, targeting economic development, infrastructure, and governance reforms. However, recent trends indicate a decline in aid, with civilian assistance dropping to less than $200 million in 2022.

USAID’s ongoing projects in Pakistan have focused on strengthening key areas such as clean energy, climate resilience, water management, and agriculture. In 2022, aid distribution included $63 million for humanitarian assistance, $40 million for governance, $27 million for health and population, and smaller amounts for agriculture, infrastructure, and economic growth. These funds have played a critical role in addressing Pakistan’s chronic challenges, including poverty alleviation, education, and public health.

The sudden suspension of aid disrupts this fragile ecosystem and leaves Pakistan vulnerable at a critical juncture. Economically, Pakistan is grappling with high inflation, a depreciating currency, and mounting external debt. The loss of U.S. assistance exacerbates these issues, particularly in sectors like health and agriculture that depend on external funding. Political analyst Dr. Hassan Raza notes, “The U.S. aid freeze adds significant pressure on an already struggling economy. This move will compel Pakistan to seek alternative funding sources, likely deepening its reliance on China.”

China, a key ally and strategic partner, has invested heavily in Pakistan through the China-Pakistan Economic Corridor (CPEC), a flagship initiative of Beijing’s Belt and Road Initiative. The aid freeze could push Pakistan further into China’s economic orbit, altering regional dynamics and U.S. influence. Economist Dr. Ayesha Khan highlights, “The U.S. decision may backfire strategically, as it forces Pakistan to lean more heavily on China, undermining Washington’s leverage in South Asia.”

Politically, the move raises questions about the future of U.S.-Pakistan relations. The relationship has historically been a transactional one, characterized by periods of close cooperation and tension. This decision threatens to erode trust further, especially at a time when Pakistan is seeking international support to stabilize its economy and address climate change challenges. A senior government official remarked, “This decision is myopic and jeopardizes decades of collaboration. The United States stands to lose a vital regional ally.”

The Trump administration’s decision also sends a broader message about its foreign policy priorities. By exempting Egypt and Israel, it underscores a shift towards selective engagement, prioritizing allies with strategic importance in the Middle East. For Pakistan, the freeze is a stark reminder of its declining importance in U.S. geopolitical calculations. The executive order comes at a time when Islamabad is navigating a complex regional landscape, including tensions with India, instability in Afghanistan, and the growing influence of China and Russia.

To mitigate the impact, Pakistan will need to diversify its economic partnerships and enhance domestic resource mobilization. However, this is easier said than done, given the country’s structural economic challenges and political instability. Some experts argue that the aid freeze could serve as a wake-up call for Pakistan to reduce its dependence on foreign assistance and focus on sustainable development.

Despite these challenges, there may still be an opportunity for diplomatic engagement. The United States has historically used aid as a tool to advance its strategic objectives, and Pakistan’s geostrategic location remains a valuable asset. Washington may use the suspension as leverage to extract concessions, such as greater transparency in financial dealings or more robust counterterrorism measures.

In conclusion, the U.S. decision to freeze aid is a significant development with far-reaching implications for Pakistan’s economy and political stability. It challenges Pakistan to rethink its dependency on foreign assistance while navigating complex regional dynamics. The move also highlights the evolving nature of U.S. foreign policy under President Trump, with a focus on transactional relationships and strategic realignments. Whether this decision will strengthen or weaken U.S. interests in South Asia remains to be seen, but for Pakistan, the road ahead is fraught with uncertainty and opportunity.

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance.

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