Pakistan: A Bleeding Economy & High Cost of Security

For a nation on the brink of economic collapse, it is undoubtedly a formidable task to lay out its annual financial budget. But what must perhaps be even more challenging is to manage the expenditure of the country's most powerful entity.

On June 9, 2023, despite the dangers of debt default staring in the face, Pakistan's once fugitive now Finance Minister, Ghulam Ishaq Dar, presented an ambitious and populist Federal Budget for the year 2023-24. In doing so, he also ensured that the poor country will continue to spend a large part of its national resources for meeting its military requirements.

Decoding the Defence Budget

The Defence budget is the third biggest component of Pakistan's annual expenditure after debt payments and the Public Services development fund (PSDP).

PKR 1.804 trillion has been allocated for Defence in the Budget 2023-24. The Pakistan Army has got the customary lion's share (Rs 824.65 billion) while Rs 368.56 billion and Rs 188.24 billion have been earmarked for Pakistan Air Force and Pakistan Navy respectively.

In comparison, Education has been allotted a meager amount of Rs 82 billion while the Health sector has got mere Rs 24.21 billion.

This year’s budget allocation will result in a hike in defence spending by approx 16 percent. Some analysts (encouraged by the ubiquitous GHQ - ISPR combine) have argued that in real terms (due to the falling value of PKR and increase in inflation), this actually amounts to a 19.4% decrease from the budget in 2022 (7.7 billion USD). The argument has some merit but it conveniently overlooks the fact that the budgetary allocation under "defence head" does not include many key expenditures such as the Military Modernisation Programme (funds for acquisitions and R&D), Military Pensions and the Strategic (nuclear) programme. In addition, past experiences have shown that an additional supplementary budgetary grant is always made towards the end of every fiscal year. For instance, the initial defence budget of Rs 1.57 trillion in 2022 was later revised to Rs 1.59 trillion.

In this year's budget of 1.804 trillion PKR, Rs 5.4 billion has been allocated for administration, Rs 705 billion for employees-related expenses (mainly the salaries and allowances), Rs 442 billion for operating expenses (such as transport, rations, medical treatment and training), Rs 461 billion for physical assets (local purchases, import of arms, ammunition and related procurements) and Rs 195 billion for civil works (funds marked for maintenance of existing infrastructure and construction of new buildings).

In any case, the total expenditure on defence is always more than the allocated amount as the budget has separate heads for expenditures such as Pension. In this year's budget, 563 billion PKR has been allocated for the pension of retired military persons, a steep 26 percent hike from Rs 446 billion last year. Similarly, Rs 280 billion for the armed forces development programme and Rs 58 billion earmarked for UN peacekeeping missions are not formally included in the defence budget.

Even by the official estimates, Defence spending forms approx 1.7 per cent of the Gross Domestic Product (GDP) and approx thirteen percent of the total government expenditure.

However, as was mentioned earlier, the total expenditure on defence by Pakistan is always more than the declared amount. This deliberate opacity and ambiguity in the budgetary allocation thus obfuscates the large military expenditure done by Pakistan, often at the cost of improving the lives of its citizens.

For example even under the Public Sector Development Programme (PSDP), Rs 3.4 billion have been allocated for defence projects. These include Rs 100 million towards establishing a project management cell for creating a shipyard at Gwadar and Rs 1.9 billion to upgrade the infrastructure of Karachi Shipyard and Engineering Works( KSEW).

A tough road ahead

For the past few months, the government has been engaged in negotiations with the IMF for a bailout package. Meanwhile, the forex reserves of Pakistan have reduced to $3.9 billion, less than even one month of import cover. The value of the Pakistan rupee is on a steep decline and the rate of inflation is at a record high.

The large financial empire of Pakistan's military on the other hand seems to be unaffected by this grave economic crisis. More than fifty business enterprises ranging from 'production of fertilizers to the construction of housing colonies' are thriving under the aegis of military-run organisations such as the Fauji Foundation, Shaheen Foun­dation, Bahria Foundation, Army Welfare Trust (AWT), Frontier Works Organisation ( FWO) and Defence Housing Authorities (DHAs).

Despite a failing economy, Pakistan's military has continued its modernisation programme driven mainly through Chinese assistance. Some of these key procurement programs include SH-15 155 mm wheeled self-propelled howitzers, J10 fighter aircraft, Type 054A/P class frigates, Yuan-class type-041 diesel submarines and CH-4 medium-altitude long-endurance unmanned aerial vehicles.

There have been calls for greater transparency in military spending and the civil society has started to raise their voice about the ability of an impoverished nation to afford such high levels of defence budget. The military, however, has so far managed to justify its enormous expenditure by citing existential threats from India and internal security challenges faced by Pakistan.

However, as the spectre of a financial collapse of nuclear-armed Pakistan looms large, criticism about the negative impact of defence spending on the development of the country is gathering pace in some segments of society. Military however remains unfazed by the public scrutiny and has refused to cede any ground(and funds).

It is clearly evident though that in the absence of any meaningful adjustments in national expenditure, the current financial crisis will worsen further and Pakistan will once again have to rely on international aid for survival.

And that is why Bhutto's prophecy of 'eating grass' might turn out to be true quite soon. Or as someone in Pakistan said more succinctly: 

“Bhukkay reh gaye main tey tu,

Lut ke lay gaya GHQ”

(Disclaimer: The views and opinions expressed within this article are the personal opinions of the author. The facts, analysis, assumptions, and perspectives appearing in the article do not reflect the views of Republic TV/ Republic World/ ARG Outlier Media Pvt. Ltd.)