Pakistan’s financial relationship with the United States has historically been characterized by both development and dependence, though the balance between the two has shifted more towards ‘dependence’ over time due to changing geopolitical circumstances and national priorities. The US became an important strategic ally in exchange for heavy financial assistance, due to which Pakistan often compromised its own internal policies and national interests. Pakistan and its economy got drawn into a vicious cycle of funds and aid not just by the US but also by other international organisations like the World Bank and International Monetary Fund (IMF) run and dominated by the same cores. Pakistan, being a periphery of the world economic system in its early years, contributed to its own underdevelopment by being at the receiving end. Now the onus is on Pakistan to realign its financial relationship with the U.S so that it takes on the trajectory of development via mutual trade rather than continuing to submerge into a state of continued dependency.

In the early years, U.S. financial assistance to Pakistan was primarily driven by the goal of promoting economic development, improving infrastructure, and reducing poverty. The U.S. provided funding for various sectors such as education, health, energy, and agriculture. During the 1950s and 60s U.S. was one of Pakistan’s largest foreign aid donors, contributing funds for industrial projects, agricultural development, and infrastructure building. This was part of the broader Cold War-era strategy to secure alliances in South Asia. During the Soviet Afghan War, Pakistan became a key U.S. ally in the region. The U.S. provided significant financial assistance to support Pakistan’s military and its role in the Afghan resistance (the Mujahideen). Although much of this aid was military, there were also development-oriented programs aimed at strengthening Pakistan’s capacity to deal with the fallout from the war. After the 9/11 attacks, Pakistan’s role in the War on Terror saw another surge in U.S. aid. Some of the funds were earmarked for development projects, including those in education, health, and infrastructure, though much of the aid was for military and counterterrorism operations.

Despite the development aspects of U.S. assistance, Pakistan has also become increasingly dependent on financial aid from the U.S, particularly during periods of crisis or economic instability. Some key reasons for this dependency include security/military aid, balance of payments support and conditionalities. A significant portion of U.S. aid to Pakistan has been in the form of military assistance. The U.S. has provided funds for Pakistan’s defence and security apparatus, particularly during times when Pakistan was seen as a critical ally in the U.S.’s broader geopolitical strategies, such as the Cold War, the Soviet Afghan War, and the War on Terror. Pakistan’s military relies on this aid to maintain its defence capabilities, especially in the context of its longstanding rivalry with India. At various points, Pakistan has turned to the U.S. and other international partners (such as the International Monetary Fund or IMF) to balance its external payments or stabilize its economy. This is often due to Pakistan’s recurring fiscal deficits, inflation, and lack of foreign exchange reserves. U.S. financial support has often been linked to specific conditions, particularly related to military or political alignment. For instance, the U.S. has sometimes withheld, or reduced aid based on concerns over Pakistan’s nuclear program, human rights record, or cooperation in counterterrorism efforts.

Pakistan’s financial relationship with America doesn’t encompass aid only, in fact it also includes the trade between the two nations. This according to the Prebisch-Singer hypothesis is a relationship of dependence marked by exploitation. Accordingly, the rich nation or the core imports raw materials from the poorer nation, the periphery. The core then exports the finished products to the periphery hence making it an unequal trade. Pakistan exports cotton, leather, spices and other raw materials to the US and imports manufactured end-products like machinery, articles of apparel etc. This situation has gotten better as Pakistan seems to be moving from being a periphery to a semi-periphery state. Now we export at least some finished products to the US like textiles, rugs, carpets, sports goods etc. This has driven a rise in Pakatan’s GDP growth from 5.2% in 2017 to 10.99% in 2024.

U.S. aid has contributed to various development projects in Pakistan, the overall relationship has also deepened Pakistan’s economic dependence on external support. Several factors underscore this complex dynamic. These are economic instability, shift in U.S. priorities and aid and geo-politics. Pakistan’s economic challenges, including inflation, high public debt, low foreign direct investment, and dependence on foreign loans, have led to its reliance on both the U.S. and international financial institutions (such as the IMF and World Bank). Over time, U.S. aid priorities have shifted in response to changing geopolitical dynamics. For instance, after the end of the Cold War and the Soviet withdrawal from Afghanistan, U.S. military assistance to Pakistan diminished. However, Pakistan continued to receive support as a frontline state in the War on Terror after 2001, although the focus remained largely on military and counterterrorism spending rather than broad-based economic development.  The financial relationship has often been shaped by broader geopolitical considerations, and U.S. aid has at times been used as a tool to influence Pakistan’s foreign policy, especially with respect to relations with India, Afghanistan, and China. For example, Pakistan’s ties to China have been a concern for the U.S., leading to periods of fluctuating aid.

The Aid from U.S. has had positive effects, such as funding development projects, improving infrastructure, and enhancing security, it has however also contributed to economic distortions. There is an argument that the dependence on foreign aid, including from the U.S., has hindered Pakistan’s long-term economic growth by discouraging structural reforms and increasing reliance on external financial flows instead of domestic resources Furthermore, aid provided by the U.S. is not always in the form of grants but often includes loans or military assistance, which can add to Pakistan’s overall debt burden. This, in turn, creates a cycle of dependence where Pakistan needs continued external support to manage its debt and meet its obligations.

Pakistan’s financial relationship with the U.S. is a complex blend of both development assistance and dependence. On one hand, U.S. aid has helped Pakistan in various sectors, contributing to its development and helping address economic challenges. On the other hand, Pakistan has become reliant on this external support, particularly in the form of military aid, loans, and financial assistance linked to geopolitical strategies. This dependence has sometimes limited Pakistan’s ability to pursue independent, long-term development strategies and has kept it in a cycle of reliance on external aid. In sum, while there has been development, Pakistan’s financial relationship with the U.S. has been predominantly shaped by strategic interests, military ties, and the need for economic stabilization, making it more of a dependent relationship than one of purely developmental assistance.