CSF beyond 2015

The United States Congress extended its limitation on reimbursement to Pakistan under the Coalition Support Fund (CSF) by amending the National Defense Authorization Act for Fiscal Year 2014 by striking “fiscal year 2014” and inserting “fiscal year 2015”.

However, a US Congressional research report has “asked the 114th US Congress to consider whether it should continue to authorise the Pentagon to provide Pakistan with CSF reimbursements now that most international forces have departed Afghanistan”.

The US government provides CSF to 27 coalition partners for incurring costs in support of US military operations. Since 2001, the US has reimbursed Pakistan around $13 billion under the CSF and by 2008 Pakistan was the recipient of around 81 percent of all CSF disbursements.

Reimbursements have not been smooth or automatic in recent years given the concerns by the US that assistance earmarked for our fight against terror on our borders with Afghanistan was diverted to strengthening our borders with India – a claim that was also made publicly by Musharraf after his retirement as chief of army staff and as president of the country.

There were also concerns that the bills were inflated and an audit was thenceforth undertaken which accounted for slower reimbursements as well as an amount that was lower than billed. Additional limitations placed on the release of CSF in the current year require Pakistan to demonstrate that it is committed to ensuring that “North Waziristan does not return to being a safe haven for the Haqqani network.”

This no doubt raises serious concerns in Pakistan’s military and civilian circles alike. The military remains engaged in an operation clean-up in conflict zones throughout the country that include settled areas (an example being Karachi) and the tribal belt.

The cost of these operations are massive and given the state of the economy, the capacity of the government to fund these operations from its own resources remains severely limited. The government expects around one billion dollars (roughly around 100 billion rupees under the CSF this year). The defence budget for the current fiscal year for operating expenses is 200 billion rupees – the entire amount requested was approved – and the CSF would pick up a little more than half of this amount.

While there is ample evidence that the ongoing army operations are successful and terror networks considerably degraded, reflected by the decline in the number of suicide attacks and other criminal activities linked to terrorism, yet it is unlikely that the cost of these operations would halve by next year thereby eroding our heavy reliance on CSF.

While there are few who are unconvinced that our development agenda must take a back seat to dealing with our security concerns, long acknowledged as the single most serious impediment to economic activity, yet a decline in development spending would without doubt have serious negative socio-economic implications as well as political implications on the ruling party.

The cessation of CSF would compel Federal Finance Minister Ishaq Dar to either reduce the allocations for defence, which appears unlikely, or as has become the usual practice during the years when projected expenditure is higher than realised revenue, divert development spending to meet the current expenditure.

As matters stand today Dar’s claims that he has ushered an era of austerity are limited to a decline in subsidies that unfortunately have had a direct bearing on the quality of life of the people. All other components of current expenditure continue to rise unabated.

Defence, loan repayments (domestic and foreign) as well as interest payments on these loans and running of civil government are the major components of current expenditure, items that have displayed a downward stickiness in our budgets. Thus without CSF we may have to rely on more borrowing which would simply raise interest payments.

In other words, the need to raise revenue domestically through the levy of equitable taxes rather than taxing the already taxed remains the need of the hour.