Correction: A previous version of this story misidentified the fiscal year for which Pakistan increased its defense budget. Additional details have been added for clarity.
ISLAMABAD — Pakistan’s government is giving the military a nearly 6% funding increase for fiscal 2021-2022, and it increased the fiscal 2022-2023 defense budget by 2.69%, according to Finance Minister Miftah Ismail.
Pakistan’s new coalition government on Friday presented its first budget in parliament, levying more taxes on the rich and vowing to remove subsidies on energy and fuel, mainly in an effort aimed at reviving the $6 billion bailout package by the International Monetary Fund.
The package has been on hold since earlier this year over policy breaches. Pakistan is expected to resume talks with the IMF soon amid hopes the world lender will revive the bailout plan.
A combination of inflationary pressure, unpaid bills and falling foreign currency reserves drove the Defence Ministry to request the funding increase to avoid shortfalls that would otherwise have hindered operational capabilities.
The FY2022-2023 budget is an 11.17% increase over the original 1.37 trillion ruppee budget for FY2021-2022; but the former is a 2.69% increase when measured against the revised FY2021-2022 budget.
The FY2022-2023 budget is 2.1% of the country’s gross domestic product. That fiscal year begins July 1, 2022.
Total military spending is not reflected in these figures, as they omit procurement under the Armed Forces Development Program, pensions and other military expenditure.
The Stockholm International Peace Research Institute, a Sweden-based think think, found that Pakistan’s military-related expenditures for 2021 came to $11.3 billion.
An economy in ‘dire straits’
Amid the ongoing threat of domestic terrorism and the need to maintain a credible deterrent against India, the fate of Pakistan’s economy does not bode well, according to Pakistan expert Claude Rakisits, who teaches at the Australian National University.
“Pakistan’s economic situation is in dire straits. This makes it difficult for the government to buy new hardware or even plan ahead for new acquisitions,” he said.
Brian Cloughley, an analyst and former Australian defense attache to Islamabad, has tracked developments in Pakistan for decades, and he doubts the government’s fiscal approach will be different from previous ones that failed to address underlying issues, including the country’s elite effectively ruling for their own benefit, leading to Pakistan’s cycle of economic woes.
“It is likely, however, that there will be announcement of deferment of expenditure plans for at least some acquisitions, if only to try to convince the [World Bank and International Monetary Fund] that their present, fairly benevolent policy on Pakistan should be maintained,” he said.
But he also believes Pakistan can likely rely on its allies and other friendly nations to carry the load. “The Chinese and the Saudis will probably continue to support Pakistan’s military posture and plans, and the current — most serious — economic crisis will have little effect on the military overall.”
Rakisits agreed that Pakistan might rely on China, although Beijing will likely step in for its own benefit.
“China has a vital interest in ensuring that not only does Pakistan’s economic situation not get worse, which could threaten the overall stability of the country and the viability of its CPEC project, but that it is in a position to maintain its defense capability,” Rakisits said, referring to the China-Pakistan Economic Corridor, which is meant to improve infrastructure to strengthen trade between the two countries.
“Accordingly, It’s almost certain that Beijing will assist Pakistan financially in one way or another, especially in light of the West’s increased interest in selling military hardware to India,” he added.
However, China and Saudi Arabia initially declined Pakistan’s requests for economic aid until it submitted to conditions attached to the latest IMF loan.
The latest round of talks between the Pakistani government and the IMF on the $6 billion bailout package concluded last month. Pakistan has since removed energy and fuel subsidies, a drastic measure demanded by the global lender.
The slash has caused an increase in prices of food and other essential goods, drawing condemnation from the Pakistan Tehreek-e-Insaf political party and leading to concerns there could be a surge in poverty in the Muslim majority nation of 220 million people.
Fida Muhammad Khan, a defense economics analyst with the Pakistan Institute for Development Economics research institute and think tank, said the IMF deal showed Beijing and Riyadh it is economically safe to help Pakistan.
Whereas Saudi Arabia would prefer Pakistan align with regional U.S. interests and isolate Iran, he said, “China has to assess the risk and the burden that such support could bring, and what will be the likely effects of Chinese aid to Pakistan for the Chinese economy.”
While China undoubtedly wants a secure Pakistan, which it would protect in the face of direct aggression, “China will not go an extra mile to help Pakistan unless Pakistan has something of value to offer,” he added.
Passing the budget
The National Assembly will likely approve the budget, perhaps as early as next week. Ismail, the finance minister, expressed optimism that Pakistan will find a way out of the crisis
“We have done it before and we will do it again,” Ismail said, while also announcing a 15% raise in salaries of government employees to counter the effects of inflation.
Friday’s presentation did not see the traditional chorus of resistance from the opposition — simply because opposition seats in the 344-member National Assembly are vacant after more than 131 lawmakers from former Prime Minister Imran Khan’s party and their allies resigned and walked out of the chamber following the April no-confidence vote that ousted the former premier.
Newly elected Prime Minister Shahbaz Sharif has a simple majority in the parliament, enough to get the budget passed.
Khan, his Pakistan Tehreek-e-Insaf party and their supporters have been demanding new elections and vowing to force Sharif to call the vote. Khan insists his government was ousted under an American plot, a charge which the United States denies.
Munir Ahmed of The Associated Press contributed to this report.
Usman Ansari is the Pakistan correspondent for Defense News.