Pakistan Unveils Bigger Defense Budget, IMF Condemns Spending Plan

ISLAMABAD — The Pakistani government has requested a nearly 16% increase in its defense budget, despite a standoff with the International Monetary Fund over economic stagflation.

The government unveiled its request for Rs 1,804 trillion (US$6,267 million) for fiscal year 2023-2024, an increase of 15.7% over the revised total for fiscal year 2022-2023, on June 9. .

The IMF is withholding a $1.1 billion tranche of the remaining $2.2 billion of a total $6.7 billion bailout package agreed in 2019. The pause in funds is due to Pakistan’s failure to meet obligations set out by the IMF, according to the organization.

The financing would help Pakistan avoid defaulting on its foreign debts, as the State Bank of Pakistan has less than $4 billion in foreign exchange reserves. However, the country is due to make external loan repayments of $22 billion in FY23-24.

Relations between Finance Minister Ishaq Dar and the IMF are terrible. The IMF’s resident representative for Pakistan, Esther Pérez Ruiz, criticized the budget request on June 14, which included offers of tax amnesty and did not broaden the tax base.

Cutting defense spending could prove difficult in Pakistan, which is facing off against its nuclear-armed archrival India and is battling the Pakistani Taliban, also known as Tehreek-e-Taliban Pakistan, or TTP. TO Report of February 13 by the UN Security Council, cited member states for finding that the Taliban takeover of neighboring Afghanistan in 2021 has “encouraged the TTP to intensify attacks against Pakistan”.

Asked by Defense News whether Pakistan could defeat the TTP without the full cooperation of the Afghan Taliban, Safdar Hussain, deputy director and research analyst at the think tank Pak Institute for Peace Studies, said that “‘defeat’ or ‘elimination total’ may not be the appropriate term for the TTP, as it is not a conventional army.” Rather, the TTP “may be further weakened with or without the help of the Afghan Taliban,” he explained.

However, he added, “the cooperation of the Afghan Taliban is vital in dealing with the TTP threat because even if Pakistan ensures that the group is completely eliminated from Pakistani soil, it can continue to operate from Afghanistan and carry out cross-border raids and attacks, and it will try to regroup on this side of the border whenever it finds an opportunity.”

What’s in the proposed budget?

Pakistan’s defense budget for FY22-23 increased from planned Rs 1.57 trillion to Rs 1.59 trillion.

The FY23-24 defense budget request is 1.7% of gross domestic product, an economic indicator that has declined recently, while the FY22-23 fund was 1.87% of GDP. The currency’s devaluation against the US dollar, coupled with record inflation, makes it difficult to make a direct comparison in dollar terms.

Some spending efforts, like defense procurement, are excluded from the new defense budget bill.

An additional Rs 280 billion was allocated for military development programmes, among other efforts, with Rs 100 crore earmarked for project management for a new shipyard in Gwadar and Rs 1.9 billion for infrastructure upgrades in Karachi. Shipyard and Engineering Works.

The latest proposal would see the Army receive Rs 824.6 billion, the Air Force receive Rs 368.5 billion and the Navy get Rs 188.2 billion.

An amount of Rs 442 billion is for operational expenses, and Rs 461 billion would go towards domestic and imported arms and ammunition.

The government did not detail planned spending on its nuclear deterrence program.

It’s worth it?

Tuaha Adil, a research economist at the Market Economy Policy Research Institute, said the amount Pakistan plans to spend is worrying. However, he told Defense News, at 12.4% of total spending and 1.7% of GDP, the figures for fiscal year 23-24 show a decrease compared to the figures for fiscal year 22-23 of 14 .3% and 1.87%, respectively.

Pointing to the TTP threat in particular, he said defense spending must increase, even at the expense of development.

He added that the “underlying cause” of the country’s economic problems “are recurring fiscal deficits” caused by the misallocation of resources, untargeted subsidies, the inability of governments to reduce losses through the privatization of state-owned companies. financially unstable and the failure to improve the internal tax system.

Defense economics analyst Fida Muhammad Khan has said the army will fund critical projects such as the JF-17 Thunder fighter program no matter what. And he dismissed calls for defense cuts as politically motivated and misinformed.

“Missile systems and nuclear programs will, in most cases, be business as usual. This is not the first time we have been affected by an economic crisis,” according to Khan, who lectures at the Pakistan Institute of Development Economics think tank. “The face value is high, but in real terms there have been many times in history when Pakistan has faced such situations. And in all those bad times, defense budgets and critical defense programs have remained safe from budget cuts.”

However, he told Defense News, “the economic situation will have a negative impact. We can expect delays in the delivery of equipment and also a discouragement for the acquisition of new weapons systems.

That could affect projects like the Navy’s Sea Sultan maritime patrol aircraft or overseas acquisition efforts. Consequently, he said, the military should make “major cuts in recurring spending and divert those funds toward weapons/equipment acquisition and modernization campaigns.”

He also stressed the need to increase defense exports, especially to Africa, and recommended that institutions such as Pakistan’s Aviation Complex offer maintenance, repair and overhaul services to foreign clients, including the Taliban. Khan sees this as a realistic approach for Pakistan to earn revenue while helping the Taliban fight the Islamic State group.

If Pakistan is forced to make spending cuts, the government should look elsewhere, he added, criticizing the size of social safety net programs such as the Benazir Income Support Scheme, which is budgeted for 455 billion rupees, more than Air. Force, and underperforming state-owned companies such as the national airline and the railways.

Given the threat of the TTP and India’s defense spending, “the current budget provision is less than required,” Khan concluded.

Even if Pakistan restructures its debts, as suggested by the finance minister, it is not clear whether that would affect defense spending, Adil said, noting that Pakistan’s public debt is 63% internal and 37% external.

“It is crucial that the government exercises fiscal prudence and implements structural reforms to avoid the crisis,” Adil said.

But Khan insisted that “the defense budget is not determined by the economic situation. Its main determinant is the country’s security situation and its national interests, including the protection of its sovereignty.