The Trump administration has slashed its foreign military financing (FMF) to Pakistan from USD 255 million to USD 100 million for the 2018 fiscal, but has kept its options open whether it would be a grant or should be converted into a loan, according to a US official.

"While we may use FMF to leverage loans for some countries, we will still maintain the flexibility to use it as grant assistance where needed," a state department spokesman told PTI when asked about the budget proposal of USD 100 million in foreign military funding to Pakistan.

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"This budget focuses on bilateral FMF assistance requested for Israel (USD 3.1 billion), Egypt (USD 1.3 billion), Jordan (USD 350 million), and Pakistan (USD 100 million)," the spokesman said yesterday.

Last year, the US assistance to Pakistan under the state department budget was USD 534 million, which included USD 225 million towards foreign military funding.

In all, the state department has proposed a massive USD 190 million reduction in its financial aid to Pakistan as compared to the 2016 fiscal. The current 2017 fiscal ends on September 30 this year.

On Monday, the White House said that FMF to Israel and Egypt would continue to be in the form of grant while for Pakistan it would be a loan but a final decision would be taken by the state department.

"The Foreign Military Funding or FMF for Pakistan would be provided in the form of a loan guarantee," said Mick Mulvaney, Director of the Office of Management of Budget in the White House.

Responding to questions, Mulvaney said the Trump administration has proposed to convert its FMF programme to many countries from aid to financial loan.

Pakistan is one of those countries.

"This is one of the options that the administration had explored in its internal deliberations, but the request itself does not make that determination," the White House later clarified indicating it might revert to the original financial grant to Pakistan to sell military hardware if need be.

"Whether the funding is provided through grants, or as a subsidy for a guaranteed loan, is an option the state department can exercise to ensure our foreign assistance best supports our national interests," the White House said.

"Our argument was instead of giving somebody USD 100 million, we can give them a smaller number worth of loan guarantees and they can actually buy more stuff. We did not change it for Israel. We did not change it for Egypt," said Mulvaney.

In another major development, the Trump administration in its annual budget for 2018 fiscal beginning October 1 this year has proposed to end the Pakistan Counterinsurgency Capabilities Fund (PCCF), which was budgeted as USD 9 million in both 2016 and 2017.

PCCF was designed to build the counterinsurgency capabilities of Pakistan's security forces engaged in operations against militant extremists in the Federally Administered Tribal Areas (FATA) and Khyber-Pakhtunkhwa.

"While the counterinsurgency purpose underlying the PCCF account and the maintenance of close US Pakistani military ties remain important administration priorities, these needs have been met through other accounts, including Foreign Military Financing (FMF) and International Military Education and Training (IMET), since the FY 2014 Request," the White House said in its budgetary explanation.

The state department said the USD 100 million in FMF to Pakistan will be used to advance US national security interests in that country by supporting Pakistan's capacity to improve stability and security and fight terrorism, including through the elimination of safe havens for terrorist and militant organisations.

The money would be used to continue efforts to build the counterterrorism and counterinsurgency capabilities of Pakistan's security forces to improve security in the tribal areas along the border with Afghanistan, achieve progress on joint US-Pakistan objectives, including bilateral efforts to decimate core al-Qaeda elements and confront the emerging threat posed by ISIS-Khorasan Province.

Funds will also improve Pakistan's ability to participate in US-led Coalition Maritime Forces and patrol its maritime borders to stem the flow of illicit materials and personnel, it said.