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US military aid to Pakistan may be converted into loans

Updated May 23, 2017

The Trump administration's budget proposal would convert some of the United States' foreign military grants to loans, affecting several countries, including Pakistan.

The proposals are a part of a larger effort to slash spending on diplomacy, aid and programmes abroad by more than 29 per cent, the White House said on Monday.

The Wall Street Journal, which first reported the proposal, said the foreign military grants could affect Pakistan, Tunisia, Lebanon, Ukraine, Colombia, the Philippines and Vietnam.

The cuts to programmes under the State Department are in part meant to fund an increase in the US's own military spending.

White House budget documents showed total defence spending for the 2018 fiscal year at $603 billion, about 3 per cent higher than President Barack Obama's proposed 2018 fiscal year defence budget.

The $603bn includes funding for nuclear weapons programmes at the Department of Energy and other national defence programmes as well as the Department of Defence.

The Pentagon's specific defence request is for $574.5bn, an increase of 4.6pc compared to fiscal year 2017.

Under US President Donald Trump's proposal, the United States would spend 29.1pc less on the State Department and “other international programmes” in the 2018 fiscal year compared to 2017, a decrease of $11.5bn.

That decrease includes a re-shaping of the way some countries receive military aid from the United States. Foreign military financing gives countries loans or grants to buy US military equipment.

The State Department decides which countries are given the financing while the Pentagon executes the decisions. Under the Trump proposal, many current grants would instead be converted to loans.

“We do change a couple of the foreign military programmes from direct grants to loans,” said Mick Mulvaney, the director of the White House Office of Management and Budget, in a briefing with reporters on Monday.

“Our argument was instead of ... giving somebody $100mn, we could give them a smaller number worth of loan guarantees and they could actually buy more stuff.”

Military aid to Israel and Egypt, two close US allies in the Middle East and the biggest recipients of US military assistance, will remain unchanged, Mulvaney said.

US military assistance to partners and allies reached $13.5bn in 2015, or 28pc of all US foreign aid spending that year, according to the Congressional Research Service.

Most grants through the Foreign Military Financing (FMF) programme go to Israel, Egypt, Jordan, Pakistan and Iraq.

Congress ultimately controls the government purse strings and may reject some or many of the Trump administration's proposals. Republicans and Democrats in Congress have criticised the size of the cuts to the State Department and US Agency for International Development.

Mulvaney said that aid to Pakistan would be reduced, though he did not give concrete details. “(The) State (Department) still has some flexibility to come up with a final plan on that, but I do know that writ large we have proposed to move several countries from a direct grant programme to a loan guarantee programme,” he said.

'Affected countries may approach China for for supplies'

Todd Harrison, a defence budget analyst with the Centre for Strategic and Budgetary Assessments, said the switch from grants to loans for military aid may mean that countries will not be able to afford US military equipment, forcing them to go elsewhere for supplies.

“Countries can buy from China or Russia. They have other places to shop, and one of the ways that we build capacity with our partners is through these grants,” Harrison said.

“It's in our interest to have interoperability with our allies, and these military grants are a part of that.”

Thomas Spoehr, who directs the Centre for National Defence at the conservative Heritage Foundation, said the conversion from grants to loans will be a challenge especially for smaller military aid recipient countries like Macedonia and Tunisia.

But “it's a proposal whose time has come,” Spoehr said, given US budget deficits and high military spending overall.

“This is probably a prudent place to make some cuts given all the other investments we make in national defence,” Spoehr said.