How does U.S. Foreign Military Financing (FMF) work and who can use it?
Executive summary
The U.S. Foreign Military Financing (FMF) program provides grants—and in limited cases loans or loan guarantees—funded by U.S. appropriations to enable allied and partner governments to buy U.S.-origin defense articles, services, and training, primarily through the Foreign Military Sales (FMS) system and approved commercial contracts [1] [2] [3]. Eligibility and annual allocations are political decisions managed by the State Department’s security assistance offices in line with U.S. foreign policy and congressional appropriations, with some long-standing bilateral commitments like the U.S.–Israel memorandum of understanding and large, multi-decade packages for countries such as Egypt [4] [5] [6].
1. What FMF actually pays for and how transactions are executed
FMF funds are intended to purchase U.S. defense articles, services, and training; they can be used through government-to-government Foreign Military Sales (FMS) cases, FMF-funded Direct Commercial Contracts, or approved off-shore procurement mechanisms, with the U.S. government negotiating and entering final contracts in many FMS transactions [1] [3] [7]. The Defense Security Cooperation Agency and Department of State supervise how FMF dollars flow: grants are the norm, while direct loans and loan guarantees exist as constructs to finance purchases and are routed to an FMS partner’s trust fund account under a Letter of Offer and Acceptance (LOA) [8] [2]. Agencies recover administrative FMS costs through LOA pricing, and certain costs—like offsets—are constrained when FMF funds are used [7] [2].
2. Who decides who gets FMF and how much
Congress appropriates FMF funds in the International Affairs budget, but the State Department’s Bureau of Political-Military Affairs and its Office of Security Assistance allocate those funds to eligible partners, assessing alignment with U.S. national security and foreign policy objectives and statutory requirements under laws such as the Arms Export Control Act (AECA) [9] [10] [6]. High-profile, multi-year arrangements—such as the $3.3 billion annual FMF package for Israel under a formal MOU—reflect negotiated political bargains and are explicit examples of how policy priorities shape allocations [4].
3. The mix of grants, loans, and guarantees—why it matters
While modern FMF is dominated by grants and non‑repayable assistance, the program retains loan instruments and loan guarantees to provide financing flexibility for larger acquisitions; direct FMF loans come from U.S. government funds, while guarantees back third‑party lenders to finance FMS purchases [2] [8]. That mix affects both recipient cost and U.S. budget exposure: grants are outright assistance, while loans and guarantees create contingent obligations that can be repaid or risk default depending on political developments [8] [2].
4. Who actually uses FMF—patterns and prominent recipients
FMF recipients are overwhelmingly U.S. allies and partners that serve strategic purposes, and historically large recipients have included Israel, Egypt, Jordan, and other Middle East and North African states; annual allocations can represent a significant share of a recipient’s defense budget in cases like Israel [1] [4] [5]. The program also serves U.S. industrial interests by channeling procurement to U.S. defense firms, with the result that FMF is as much a tool of defense-industrial policy as foreign policy [4] [2].
5. Oversight, policy goals, and critiques
FMF is justified by U.S. officials as a way to build partner capacity, interoperability, and shared burden‑sharing against threats such as terrorism, drug trafficking, and regional instability, and State’s security assistance offices are supposed to vet human rights and end‑use risks [1] [10]. Critics and oversight reports—ranging from GAO audits to policy scholars—have questioned whether large, long‑term FMF relationships deliver measurable U.S. policy gains or instead lock in expensive procurement pathways and political leverage for recipients; GAO’s reviews of Egypt and other cases highlight concerns about cost, coproduction, and evaluating results [5] [11].
6. Practical steps recipients take to access FMF
Partner governments seeking FMF typically coordinate through their Security Cooperation Organization with a U.S. Embassy and submit letters of interest; SCOs and Foreign Affairs Officers at State then process requests, which may lead to LOAs or direct commercial contract arrangements depending on procurement choices and approvals [8] [3]. Transparency tools such as ForeignAssistance.gov and DSCA publications provide public data and guidance on FMF flows, but programmatic discretion remains substantial [12] [8].
7. The political dimension and implicit agendas
FMF allocations reflect a mix of strategic priorities, congressional influence, defense-industrial interests, and bilateral diplomacy—meaning aid flows can reward political alignment as much as operational need; memoranda of understanding and multi‑year commitments illustrate durable political bargains that shape regional balances and U.S. influence [4] [9] [5]. Reporting and audits note that this blend of goals creates incentives and tensions—between accountability, U.S. industrial support, and the desire to maintain partner capabilities—that should be weighed when assessing FMF outcomes [11] [5].