Ever since he assumed presidency, Joe Biden hasn't called PM Khan for some customary chit chat. But that doesn't mean bilateral relations are sinking. Au contraire, as the full US withdrawal from Afghanistan comes closer, the Biden administration, in the words of its National Security Advisor (NSA) Jake Sullivan, has had “constructive discussions in the military, intelligence, and diplomatic channels with Pakistan”. The US needs Pakistan to build “effective, over-the-horizon capacity” to “suppress the terrorism threat in Afghanistan”.
Whether Pakistan will be able to entertain (or afford) the US need for military/intelligence bases (or whatever novel/neutral word is chosen for a “base” in the end) in this country is a question better left to security experts and diplomatic observers. What intrigues economic analysts at this point in time, when the Pakistani government is looking to turbo-charge economic growth after trying stabilization for a couple of years, is how long will the newborn spirit of security cooperation between the two countries last, can this diplomatic thaw potentially mend bilateral ties, and most important, can it lead to tangible economic cooperation?
Official assistance is one way to gauge how much the US has become interested in Pakistan again. Since 2002, the US government has provided Pakistan more than $32 billion in civilian and military assistance, as per the US Embassy in Pakistan website. The bulk of this aid arrived in the decade after 9/11, and since 2011 and the OBL raid, the inflows have been on a downward trajectory. While US assistance is unlikely to reach high levels in the foreseeable future, an uptick in inflows can provide a feel-good factor.
Last month when the Biden administration announced its first budget (FY22), it made headlines here for allocating unspecified millions under economic and military assistance for Pakistan. In reality, it’s uncertain how much Pakistan will get. Official data from the US State Department show that assistance for Pakistan averaged about $80 million per year during the Trump administration (see the table). Whereas during the Obama administration’s last year in office (FY17), the US had provided aid worth $512 million.
Trump was all stick and no carrot, although his administration had softened its tone later on when the peace talks with the Taliban gained traction, leading to an agreement with the US in February 2020. With an eye on Afghanistan, Biden, who is a Democrat with prior experience dealing with Pakistan, may find it reasonable to send assistance dollars at a scale last seen during early years of Obama presidency. However, it may be contingent on a level of peace and quiet in Afghanistan that suits Biden’s taste.
The transient nature of foreign aid should push Pakistan’s policymakers to step up their economic diplomacy and engage the US on trade and investment-related matters. When Moeed Yusuf, the Pakistani NSA, met his American counterpart in Geneva last month, he reportedly shared a “blueprint” to center bilateral relations around trade, climate change, energy and technology. (While the current government’s “shift” from “geo-strategic to geo-economics” is well-publicized, it can be argued that the previous governments had tried this approach, too. CPEC is a manifestation of those efforts).
Some proposals that have come out from the Pakistani side in bolstering US-Pakistan economic relations reportedly include the revival of the U.S.-Pakistan Trade and Investment Framework Agreement (which is the main avenue to discuss economic issues), setting up economic zones in Karachi and erstwhile Fata regions, and facilitating investment in local ICT firms. Those are pretty standard ones. For its part, the US State Department has cited “regulatory barriers, weak intellectual property protections, and discriminatory taxation” among main challenges confronting American companies operating in Pakistan.
The US continues to remain Pakistan’s largest export market, offering a sizable trade surplus. There is a need to preserve and grow the economic stakes there. One sure-fire way of growing exports to the US market is to clinch a free-trade agreement (FTA) while the US is still engaged with Pakistan. After 9/11, Pakistan failed to economically capitalize on its front-line status during the War on Terror as it didn’t push the US for FTA. And even now, the FTA is not being vigorously pursued with the US, despite Washington’s potential dependency on Pakistan in a post-withdrawal Afghanistan. This window of opportunity won’t stay open for long.