"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 spokesperson told PTI when asked about the budget proposal of $100 million in foreign military funding to Pakistan.
"This budget focuses on bilateral FMF assistance requested for Israel ($3.1 billion), Egypt ($1.3 billion), Jordan ($350 million), and Pakistan ($100 million)," the spokesman said yesterday.
Last year, the US assistance to Pakistan under the state department budget was $534 million, which included $225 million towards foreign military funding.
In all, the state department has proposed a massive $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.
Responding to questions, Mr 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 $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 Mr Mulvaney.