How Trump’s foreign aid freeze could hurt bankrupt Pakistan

The United States has temporarily suspended foreign assistance to Pakistan for a re-evaluation.

US President Donald Trump has signed an executive order, leading to the suspension of financial aid to Pakistan.

As a result, several key projects funded by the United States Agency for International Development (USAID) in Pakistan have been put on hold.

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The White House confirmed on Wednesday that a “federal funding freeze” is still in place, despite the decision to rescind a controversial memo that had initially ordered a freeze on grants and loans. The memo was intended to allow agencies time to review their programs for alignment with Trump’s agenda.

For years, Pakistan has struggled with an escalating economic crisis, marked by rising inflation, increasing debt, and an unsustainable fiscal imbalance. The country’s economic growth fell to just 2.4 per cent in 2023 - lower than the population growth rate of 2.6 per cent - further worsening poverty levels.

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At a time when Pakistan is already facing a severe economic crisis, this decision could put even more pressure on its financial stability.

Let’s understand what this order means for the country:

What the pause in foreign aid means for Pakistan

A leaked memo has revealed that Secretary of State Marco Rubio has placed a 90-day halt on all existing foreign assistance, with exceptions only for emergency food aid and military funding for Israel and Egypt, BBC reported.

This decision has led to an immediate suspension of several key projects funded by the United States Agency for International Development (USAID) in Pakistan, including the Ambassadors Fund for Cultural Preservation (AFCP), the flagship programme for promoting cultural heritage preservation and protection, Geo News reported.

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The report stated that without naming any specific country, Tammy Bruce, spokesperson for the US Department of State, issued a statement regarding the move.

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“Consistent with President Trump’s Executive Order on Reevaluating and Realigning United States Foreign Aid, Secretary Rubio has paused all US foreign assistance funded by or through the State Department and US Agency for International Development (USAID) for review,” Bruce said.

Energy sector & economic growth impacted

The suspension has also affected several energy-related projects, including the Power Sector Improvement Activity, Pakistan Private Sector Energy Activity, Energy Sector Advisory Services Project, Clean Energy Loan Portfolio Guarantee Program, and Pakistan Climate Financing Activity.

Also, four projects linked to economic growth have been impacted. Among them, the Social Protection Activity was originally set to conclude in 2025. The other affected programmes include the Investment Promotion Activity, Pakistan Private Investment Initiative, and Economic Recovery and Development Activity.

Geo News further reported that the USD 24.8 million FATA Economic Revitalisation Programme, implemented by the United Nations Development Programme, had already been completed before the suspension.

Agriculture sector

In the agriculture sector, the Gomal Zam Command Area Development Project was completed in 2024. However, two of the five programmes were scheduled to run until 2025, including Water Management for Enhanced Productivity and Pakistan Agriculture Programmes II. Other affected initiatives include the Livelihood and Food Security Activity for Khyber Pakhtunkhwa and Flood-Affected Districts, Climate Smart Agriculture, and Recharge Pakistan.

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Human rights & governance funds affected

Projects related to democracy, human rights, and governance have also been impacted by Trump’s executive order.

According to Geo News, four of the 11 affected projects were expected to continue until 2025. However, a USD 19.1 million initiative aimed at strengthening electoral and legislative processes had just been completed in 2024.

Other projects affected include Building Peace in Pakistan, Land Registration in Merged Areas Activity, Community Resilience Activity-North, Merged Areas Governance Programme, Inclusive Democratic Processes and Governance, Hum Ahang, Building Understanding and Involvement in Local Governance and Democracy, Subh-e-Nau, Justuju, and Water Governance for Sindh.

Education & health

In the education sector, at least four projects have been halted, including Improving Girls Education Activity, which was originally scheduled for completion in 2025. Other affected programmes include the Higher Education System Strengthening Activity and the Education Resilience Activity, both focusing on Sindh and Khyber Pakhtunkhwa.

The health sector has also been hit by the decision. Suspended projects include Integrated Health Systems Strengthening and Service Delivery, Tuberculosis Local Organisation Network, Tuberculosis Implementation Framework Agreement, Building Healthy Families, and the Global Health Security Program.

There are growing concerns that some of these programmes may be permanently shelved or significantly reduced, the report said. However, the exact financial impact remains unclear, as the total amount of US aid currently allocated to Pakistan is not publicly available.

Executive order explained

The suspension is part of a broader reassessment of US foreign aid, as mandated by Trump’s executive order. The order calls for a comprehensive review of all foreign assistance programmes to ensure they align with US national interests.

A statement from the US Department of State confirmed that the suspension applies to all foreign aid funded by the State Department and USAID.

Secretary of State Marco Rubio defended the decision, stating, “Every dollar we spend, every programme we fund, and every policy we pursue must be justified with the answer to three simple questions: Does it make America safer? Does it make America stronger? Does it make America more prosperous?”

How Pakistan reacted to the move

The Pakistan Civil Society Forum (PCSF) has expressed deep concern over the US government’s abrupt suspension of development aid, including USAID funding, to developing countries like Pakistan.

The forum warned that this decision has caused distress among hundreds of development workers and millions of underprivileged people who relied on these programmes, Dawn reported.

In a statement, the PCSF criticised the US administration, describing the move as reflective of a “colonial mindset” and an “insensitive attitude” toward commitments to global development. The forum argued that the US had historically contributed to economic and security crises in developing nations and that withdrawing aid would further deepen inequalities, the report said.

The forum warned that cutting off development funding would have dire consequences for marginalised communities, reversing progress made through social and economic initiatives.

With inputs from agencies