Pakistan’s economic woes vis-a-vis defence spending

INTERNATIONAL DESK: Pakistan’s frontiers have been breached. Not by any external actors or the so-called traditional infidels but by its own ‘Defenders in Uniform’. The ruthless Pakistan military operated business conglomerate that runs everything from politics to factories and bakeries has run the country to ground.

Economic woes: The economic situation continues to be precarious with foreign exchange reserves depleting to below USO 15 Billion in the second week of September 2022. This is barely sufficient to cover two months of imports. The investors are losing faith in the Pakistan economy due to downward spiralling of the Rupee. The USO rate now stands at Rs 239.65 which is just short of an all time low by 0.23. The oil and food import have been increasing at the rate of 11 % in July and August months while export remained muted at 4% during the same period. The country requires external financing to the tune of USO 38 Billion to meet the domestic requirements and also repayments of foreign loans while the domestic inflation has skyrocketed to 27.3%, the highest since May, 1975. The recent floods have only added to the woes of the Pakistan populace. With the flood waters receding, the outbreak of epidemics like dengue is only exacerbating the situation.

Business as usual for the Pakistan military: For the powerful Pakistan military, the dire economic situation appears to have had no visible impact as is apparent from the sustained increased budgetary allocations to all the three services. The Pakistan Army has shown remarkable skill in keeping itself aloof and insulated even in the present crisis. A look at the Pakistan’s Defence budget over the years is a proof of its continued dominance over the economy.

It is important to stress that the most relevant and widely used criteria for measuring military spending is its level compared to the size of its economy or its GOP. Based on this measure, Pakistan’s rank is the tenth globally (SIPRI Data).

India, which is the perceived existential threat to Pakistan, has corresponding defence expenditure ratio ranging between 2. 5 to 3 per cent of the GDP for the past twenty years.

Impact of Defence Expenditure on economy: The Armed Forces have been consistently overshooting the budget estimates at the end of the fiscal year and this trend continues. In Pakistan’s case, the lack of transparency makes it difficult to comment on the appropriate level of defence spending as even the basic data is hidden under different heads, not to mention the prominent role played by the military in the overall political economy (and with Pakistan COAS sitting on the Economic Council, the role of military is now set in stone).

Pakistan’s defence budget during 2021-22 was almost Rs 2.3 trillion and not the commonly reported figure of Rs. 1.37 trillion (now revised to Rs.1.45 trillion). The Rs 2.3 trillion is based on the official budget documents. (https://www.thefridaytimes.com/2022/06/06/demystifying­pakistans-military-spending-why-is-there-no-transparency/). In overall terms, the defence sector constituted 21.2% of the total budget. In the fiscal year of 2022-23 the allocation has increased to approximately 14% with the Pakistan Army getting the lion’s share of Rs 724 billion (USO 3.06 billion). A deep look into the various heads of budgets indicate that the actual defence expenditure is much higher at Rs 2.3 trillion (USO 9. 7 billion) rather than the claimed Rs 1.8 trillion. This amounts to 24% of the total budget as against the claimed 14-16%.

The defence and debt servicing make up about 58% of the budget for 2022-23, which is an increase of 24.3% over the previous year.

Freebies to the elite military: While the funds for development expenditure has been cut and subsidies withdrawn for items like petroleum products and electricity, the defence sector continues to enjoy grants, subsidies and loan write offs to the tune of Rs 116 million in the year 2022-23. This accounts for nearly quarter of the total defence sector outlay.

The Pakistani Armed Forces also generate additional sources of income through their public sector enterprises and their business welfare models. These have been traditionally exempted from excise and taxation. In 2021-22 alone, Rs 26 billion (USO 110 million) worth of tax exemptions were given to the military managed business entities. These exemptions are a stark display of the elitist position that the Armed Forces of Pakistan enjoy. Apart from these direct expenditures, a large number of military related requirements are cross subsidized and met through funds allocated to other ministries.

For a nation like Pakistan which has been continuously plunging from one economic crisis to another, the deliberate opaqueness built into the defence expenditure needs to be addressed holistically to ensure economic security. The unabashed proclivity displayed by the defence sector in enriching itself comes at the cost of the common Pakistani citizen and the nation. Failure to address this core issue would only result in repetition of this cycle of corruption and debt crisis. (iffras.org)

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