“US Aid to Pakistan”

A background paper

SADF I/XII

ALS

Introduction

Information regarding US foreign aid to Pakistan is both extensive and limited. Depending on which

source is read, the numbers can range anywhere from several billion to several tens of billions. The

main reason for the uncertainty is the nature of American foreign policy: extensive, involving

multiple government agencies in aiding Pakistan alone. The US has the most transparent system, but

visibility is still an issue due to great overlap. This has serious consequences when funds have to be

disbursed, and for proper accounting and auditing to take place, ensuring that funds were not

misspent or poorly invested.

The key concerns for the US aid program are the effects of the ongoing economic crisis and the

political relationship between the two nations. The economic crisis, and the resulting deficits that

have doubled US national debt, has forced legislators to seek sweeping budget reform. The cuts will

most likely have to come from discretionary spending – with foreign aid a likely target. The events of

2011 have strained relations between the United States and Pakistan; particularly the surroundings

and execution of the assassination of Osama Bin Laden, multiple intelligence or communication

failures leading to Pakistani army losses by NATO forces. This has already had profound implications:

Pakistan boycotted the Bonn talks in December surrounding Afghanistan, previously having blocked

supply routes through Pakistan used by Coalition forces in Afghanistan. The vast majority of US aid

has been used to support the Pakistani army and, secondly, to prop up the Pakistani civilian

government via direct budget support. If this financial support dries up, especially considering recent

internal developments, then the current civilian government will have even greater difficulties in

balancing their power with the judiciary and military.

1

1 Cohen, Craig. "A Perilous Course: U.S. Strategy and Assistance to Pakistan." Ed. Frederick Barton and Karin

Von Hippel. The Center for Strategic and International Studies, Aug. 2007. p. 16

The US budgetary process

The United States budgetary procedure is fairly complex and due to the number of steps and actors

is rather difficult to present solely with text. A flow chart, which can be found in Annex – I, has been

provided as a comprehensive overview that will aid in understanding the procedures. The following

is an overview of the Department of State and USAID’s budget formulation.

Budget requests are first formed by each ‘Country Post’, ‘Regional Office’, or ‘Functional Office’ on a

yearly basis. Budget requests normally commence two years prior to the beginning of a fiscal year

(FY); for example, the FY 2012 request was prepared in February 2010. The US Government's fiscal

year begins on October 1st of the previous calendar year and ends on September 30th.2

Foreign assistance budgets are then compiled and analyzed by the agency’s various bureaus. In mid-

September, the complete agency request is developed and submitted to the Office of Management

and Budget (OMB).

“From mid-September to late November, OMB analyzes each agency submission within the context

of the overall federal budget. As part of its analysis, OMB staff conducts hearings on countries,

sectors, initiatives, and other issues. After this assessment, OMB sends a ‘Passback’ to each agency

describing assumptions and scenarios, recommending the level of funding agencies can request from

Congress. After budget settlement, the ‘President’s Mark’ is set, determining each agency’s request

to Congress.”3

On the first Monday of February, the President submits the overall budget request to Congress. Each

agency then produces a further justification to go along with the President’s Budget. “The

Department of State and USAID submit an Executive Budget Summary document on the same day as

the President’s Budget is released, followed shortly thereafter by a substantially more detailed

Congressional Budget Justification.”4

After the President’s Budget is submitted, key actors from the agencies appear before Congressional

committees, clarifying and defending the budget request. During the hearing process, Congress

prepares what is called a ‘Congressional Budget Resolution’, which summarizes the budget plan for

at least five years and sets limits on annual discretionary spending. The budget resolutions, while

non-binding, are fiscal blueprints that guide the ‘Appropriations Committees’ work.

Congress has to pass appropriations bills every year to fund the Federal government for the

following fiscal year. The US Government is funded through 12 separate appropriations procedures,

one from each of the 12 House and Senate appropriations subcommittees.5

The House and Senate each pass their own version of an appropriation. They must then reach an

agreement on a single version of the bill; with the President then being able to sing it into law.

2 "The Budget Process." ForeignAssistance.gov. Web. 08 Dec. 2012.

<http://foreignassistance.gov/AboutTheBudgetProcess.aspx>. 3 ibid

4 ibid

5 ibid

Congress endeavors to pass all 12 of the appropriations bills by the end of each fiscal year. However,

Congress has rarely enacted all appropriations on time, and oftentimes multiple appropriations are

assembled into an Omnibus Appropriation.

When the House and Senate fail to reach agreement by the beginning of the fiscal year, Congress

passes so called Continuing Resolutions (CRs) to fund those. “CRs are stop-gap funding laws that

permit continued spending, usually at prior-year levels, until regular appropriations bills are

enacted.”6

The Foreign Assistance Act of 1961 requires the Department of State and USAID to submit a report

to Congress within 30 days of enactment of the State - Foreign Operations appropriation, showing

preliminary allocations of funds split by country or international organization. This process has

become encumbered Congressional considerations and Administration priorities. Until there is

agreement with Congress on initial allocations, those allocations are not officially established.

The period after 9/11, up until the end of 2007

7

Since 9/11 and up until the end of 2007, the US has dispensed $10.58 billion in assistance to

Pakistan. Of this, 60 percent has gone toward Coalition Support Funds (CSF). CSF is money intended

to reimburse U.S. coalition partners for their assistance in the war on terrorism, and is not

considered as assistance by the U.S. government. Roughly 15 percent of the funds provided to

Pakistan, has been dedicated to security assistance. The Pakistanis have spent most of this money on

purchases of major weapons systems. Another 15 percent has been allocated toward budget

6 "The Budget Process." ForeignAssistance.gov.

7 Cohen. "A Perilous Course: U.S. Strategy and Assistance to Pakistan." p. 39

support, which is offered as direct cash transfers to the government of Pakistan. This money is

intended to provide macroeconomic stability and to free up funds for social spending, but few

transparent accountability mechanisms are built in. This allocation leaves roughly 10 percent of U.S.

government assistance provided specifically for development and humanitarian assistance in

Pakistan, including the U.S. response to the October 2005 earthquake.8

Information after 2007

Since 2002, the United States has provided over $18 billion in foreign aid to Pakistan, roughly two-

thirds of which has been ‘security-related’.9

10

On October 15th 2009, Congress passed the Enhanced Partnership with Pakistan Act of 2009 (also

referred to as the Kerry-Lugar-Berman Bill), which authorizes up to $1.5 billion annually for five years

for development, economic, and democratic assistance, so called ‘civilian assistance’, to Pakistan.

“The act authorizes civilian assistance for a wide range of activities, including projects to build the

capacity of government institutions, promote sustainable economic development, and support

investment in people through education and health programs.”11

The graphs displaying the appropriations data for the fiscal years 2006 – 2012 (or requests in the

case of FY 2012) can be found in Annex - II. The data only covers USAID (U.S. Agency for International

Development) and the DoS (Department of State)12.

The Pakistan Assistance Strategy Report outlines how the $7.5 billion in ‘civilian aid’ would be

divided. “It indicates that, over the next five years, $3.5 billion will be allocated to high-impact, high-

8 Cohen. "A Perilous Course: U.S. Strategy and Assistance to Pakistan." p. 39

9 “U.S. GAO - Department of State's Report to Congress and U.S. Oversight of Civilian Assistance to Pakistan

Can Be Further Enhanced." U.S. Government Accountability Office (U.S. GAO). p. 1. 10

ForeignAssistance.gov http://foreignassistance.gov/OU.aspx?OUID=169&FY=2012&AgencyID=0&budTab=tab_Bud_Planned 11

“U.S. GAO - Department of State's Report to Congress”, p. 1. 12

The collection and display of data from other government agencies is still ongoing by ForeignAssistance.gov. Although visibility is improving, it is only gradual (complete disbursement information is still lacking).

visibility infrastructure programs in Pakistan, $2 billion to government capacity development, and $2

billion to focused humanitarian and social services, $500 million of which will go to address urgent

humanitarian needs with the remaining $1.5 billion to be spent on social services like education and

health in areas of strategic importance.”13

According to U.S. officials, for FY 2010 just over $1.5 billion in funds was appropriated to be

disbursed as civilian assistance, including programs funded through the following appropriation

accounts: Economic Support Funds–$1.3 billion; Global Health and Child Survival–$30 million;

International Narcotics Control and Law Enforcement--$170 million; and Non-proliferation,

Antiterrorism, De-mining, and Related Programs–$22 million.14

Appropriations versus disbursement, problems in selecting a strategy

The US has shifted its strategy in the way it deals with reimbursements, rejecting a total of 44

percent of requests in FY 2009, compared with1.6 percent in 2005. “Reimbursement claims are

reviewed carefully and decisions are based on a combination of agreed formulas. However, we do

not control what the government of Pakistan does with reimbursement funds that go into the state

bank”, says a US official in Islamabad, via e-mail.15

In 2010, the US committed to providing $1.5 billion annually for five years in civilian aid, but only

$285 million was disbursed. Equally, the Defense Department, according to a GAO report, does not

have enough information to establish the validity of $2 billion in disbursed claims. In 2008, they

found evidence of “double billing or repayment for unrelated or nonexistent efforts, including $200

million for radar upgrades – even though militants have no air force that would require such

radar.”16

Former president Pervez Musharraf admitted that aid was diverted to increase Pakistani defense in a

possible attack from India., stating that “Whoever wishes to be angry, let them be angry. The

Americans should know … that we won’t compromise our security, and will use the equipment

everywhere.”17

“The US embassy provided a breakdown of how Kerry-Lugar-Berman Act money has been spent. It

includes $32.16 million for two dam projects, $54.8 million on flood relief and recovery, $39 million

for students to study in the US, $45 million for higher education, $75 million for income support to

poor Pakistanis, and $10.34 million for small infrastructure projects.”18

US lawmakers have targeted civilian aid for cuts, over military aid, which would only impact

Pakistan’s GDP growth directly by 0.14 percent. The real issue would be a hit to Pakistan’s solvency

13

“Recommendation for Implementation of Pakistan Assistance Strategy." InterAction | A United Voice for Global Change. Mar. 2010. p. 1. 14

“U.S. GAO - Department of State's Report to Congress”, p. 5. 15

Arnoldy, Ben, and Issam Ahmed. "US Aid in Pakistan: Where's the Money Going? - How Much US Money Is in Pakistan?" The Christian Science Monitor. 16

Ibid 17

Ibid 18

Ibid

the loss of support from international lenders, such as the World Bank and IMF. In 2008, the

Pakistani economy took a nosedive, only remaining afloat due to fresh IMF loans. “As long as the

multilateral aid continues, it won’t impact Pakistan’s economy,” says Sartaj Aziz, a former finance

minister.19

A far larger economic impact would be caused by withdrawing military aid. The immediate effect,

which would greatly undermine coalition efforts across the border in Afghanistan, would be the

rescinding of Pakistani military cooperation. 20

21

As has been noted above, the effectiveness of the new civilian aid package brought in with s1707

(Kerry-Lugar-Berman) remains in doubt. The United States has been unable to allocate the assistance

as quickly as hoped due in part to the Pakistani government’s weak planning capabilities, the U.S.

government’s own bureaucratic failings, the lack of absorption capacity among Pakistan’s

nongovernmental implementing partners, and the difficulty in finding local accounting firms to

oversee monitoring and evaluation.

19

Arnoldy. "US Aid in Pakistan: Where's the Money Going?" 20

Ibid 21

Cookman, Colin, Brian Katulis, and Caroline Wadhams. "The Limits of U.S. Assistance to Pakistan." Center for American Progress. July 2011. Web. 24 Nov. 2011. p. 3

The present US assistance strategy suffers from a lack of visibility regarding the disbursal of funds

and the political effect it is meant to facilitate. “As the Center for Global Development notes in a

recent report on aid to Pakistan, the United States has attempted to use its development assistance

to pursue additional U.S. strategic objectives beyond development outcomes such as reducing anti-

Americanism or increasing support for counterterrorism efforts, with little success.”22

The structure of US support funds to Pakistan is endangering the very objectives that are trying to be

achieved. The overwhelming majority of the funds is paid out through the so called Coalition Support

Fund, reimbursing claims after the fact. This leads to a great increase in risking the integrity of

auditing; either by the US or Pakistani civilian government. At best, this will lead to mismanagement;

at worst, it will foster corruption and waste.23

Despite the atmosphere of possible austerity in the form of budget cuts, the Obama administration

has stood ground and not sought to undermine the US’ non-military assistance to Pakistan. There is

evidence of waste and fraud, but it needs to be stressed that economic and development assistance

to Pakistan needs to remain and oversight to be enhanced. Seeking retribution for Pakistani inaction

against Al Qaeda, other terrorist groups operating in Pakistan, and the gravity of Bin Laden’s death

will risk undermining the civilian government and solidifying the military’s role in the future shaping

of the state.24

A potential problem, though bureaucratic in nature, may arise in the future due to current

legislation. The length of time appropriated funds remain available for obligation “depends on the

appropriation account from which they originate.”25 The Economic Support funds; International

Narcotics Control and Law Enforcement funds; Global Health and Child Survival funds; and

Nonproliferation, Antiterrorism, De-mining, and Related Programs funds appropriated in FY 2010

remain available through FY 2011. The Economic Support funds and International Narcotics Control

and Law Enforcement funds appropriated in the FY 2010 supplemental act remain available through

FY 2012. Once the deadlines expire, the funds would have to be appropriated again – creating

further uncertainties in the current economic climate.26

27

22

Cookman. "The Limits of U.S. Assistance to Pakistan." pp. 3 – 4. 23

Ibid, p. 4. 24

Ibid, p. 4. 25

“U.S. GAO - Department of State's Report to Congress”. p. 5. 26

Ibid, p. 5. 27

Ibid, p. 5.

Criticism and recommendations for future developments

Even though US national security interests are at stake in Pakistan and in the wider region, it is vital

not to force-fit development efforts into a timetable fixed by political priorities. Short term priorities,

both political and strategic, such as ‘Counter-insurgency’ (COIN), risk derailing the long term stability

of the state. Only with sustained and consistent investment will US assistance address the conditions

that enable poverty, insecurity and instability. Thematically, future action needs to address the

following: strengthen existing coordination mechanisms; assure flexible funding to meet

humanitarian needs; develop a clear public relations strategy; provide consistent and clear

communication with the NGO community and current partners; strengthen the auditing process to

avoid wasting taxpayer funds.28

Geographic Targeting: In the Pakistan Assistance Strategy Report, the criteria defined for

social assistance programs include areas where the Pakistani government is relatively

absent, allowing for the growing influence by extremist organizations. Rather than focusing

on areas of short-term military and political importance, humanitarian and development

funding will be greatly more effective in Pakistan if geographic targeting parallels the need.

“Investments in less politically volatile regions have been relatively more successful and can

help build critical regions of stability.”29

Emphasis on High-Impact, High-Visibility Programs: the sectors branded by the Pakistan

Assistance Strategy Report for investment in so called ‘high-impact’, ‘high-visibility

infrastructure’, such as education, health, energy and agriculture, are definitely in need of

concrete and continued investment. Yet, given the somewhat intangible connection

between infrastructure projects and ‘winning hearts and minds’, large developments in

these sectors are more likely to create a sustained impact if investments in programs

accompany them that also build the capacity of skilled workers and experts. Low-visibility

programs can create more of an impact in areas of Pakistan where high-visibility projects

may become targets of extremists.30

Piloting of Localization in Pakistan: USAID and Department of State officials have indicated

that Pakistan is the pilot project in what will lead into a more global policy of localization of

U.S. assistance. “The logic of using Pakistan as the experimental pilot, given the high stakes

and volatile context, is questionable.”31

Transition Planning: as the US increasingly implements civilian assistance through Pakistani

institutions at all levels (national, provincial and local), the US needs to form a plan for a

calculated transition to Pakistani management and to go forward with the creation of a

bilateral agreement outlining the conditions for disbursement.32

Transparency: Given the size of the funding that will continue to be invested in Pakistan, the

US government needs a reliable system for ensuring transparency. The Pakistan Assistance

Strategy Report notes that audit coverage will be created in conjunction with the U.S.

28

"Recommendation for Implementation of Pakistan Assistance Strategy." pp. 1 – 2. 29

Ibid, p. 2. 30

Ibid, p. 2. 31

Ibid, p. 2. 32

Ibid, p. 2.

Inspector General Offices and the Government Accountability Office “to strengthen U.S.

government audit and investigatory capabilities” in part through the training and use of

Pakistani accounting firms. “However, audit reports produced by accounting firms are not a

good means for exposing corruption and the misuse of funds. They tend to be watered

down, kept under negotiation for years, and are typically finalized and provided for public

scrutiny long after projects have concluded.” 33 The administration needs to consider

creating an independent watchdog to keep Pakistan funding transparent and visible.34

Capacity Building: USAID’s announcement of an Assessment and Strengthening Program in

Pakistan was the first step towards creating the capacity that will be necessary to implement

programs via local NGOs and Pakistani organizations. It must be reinforced and effectively

audited as has been outlined above.35 It also needs to actively counteract the rise in the

relative strength of the military. The following quote exposes one of the many ways in which

the strategy has been failing: “One of the things we should be doing is training the police,

but we’re not doing it.. Pakistanis are not letting us. They want the Army to do everything,”

says C. Christine Fair, assistant professor at Georgetown University in Washington.36

33

"Recommendation for Implementation of Pakistan Assistance Strategy." p. 3. 34

Ibid, p. 3. 35

Ibid, p. 3. 36

Arnoldy. "US Aid in Pakistan: Where's the Money Going?"

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Annex – I

Annex – II

Foreign assistance appropriations data from ForeignAssitance.gov.