The terrible floods that struck Pakistan last summer, the dramatic rise in terrorism strikes, and political unrest all play a role in the country’s escalating economic crisis. As a result, inflation is at an all-time high. The International Monetary Fund (IMF) representatives and Pakistani authorities spent ten days of marathon negotiations in Islamabad from January 31 to February 09. Still, they could not come to an agreement because the fund required prerequisite agreements before releasing $1.1 billion of the $7 billion package agreed upon in 2019. As a result, High-Speed Diesel (HSD), Gasoline and Light Diesel Oil (LDO) prices were increased to Rs. 272, Rs. 280 and Rs 196.68 per litre, respectively. Kerosene oil is used in isolated locations without access to liquefied petroleum gas for cooking. The kerosene is marketed for Rs 202.73 per litre.
Impact of the Economic Crisis
On February 21, 2023, the Pakistani National Assembly unanimously enacted a money bill to increase tax collections to satisfy the conditions imposed by the IMF for requesting a USD 1.1 billion loan facility to prevent an economic collapse. Days after IMF advised the cash-strapped nation to take bold action to avoid slipping into a “dangerous situation” where its debt needs to be restructured, “The Finance (Supplementary) Bill 2023” or “mini-budget” was approved in the lower house of Parliament. The proposed legislation raises the sales tax on luxury goods from 17 to 25 per cent. In addition, the general sales tax has been increased from 17% to 18%. With the passage of this bill, Pakistan will be one step closer to receiving an IMF disbursement of USD 1.1 billion to help maintain its critically low level of ‘Foreign exchange reserves of just over USD 3 billion.
Inflation in Pakistan is around 40%, and the currency lost 33% of its value last year. S&P has given Pakistan one of the lowest credit ratings feasible, CCC+. Electricity outages, empty gas stations, and soaring food prices are all current problems. Pakistan is in danger of collapsing. According to Pakistani pro-Army commentators, economic instability may lead to lower defence spending, which may damage the country’s ability to retain a strong and modern defence force. This crisis could also affect the troops’ morale because they might need to receive their pay on schedule or encounter other monetary issues.
Defence forces may find it challenging to maintain their day-to-day activities in a dynamic state of affairs and may be forced to curtail their operations. Moreover, financial instability can lower defence force morale since soldiers may not receive their pay on time or experience other financial hardships. This crisis may impact their motivation and dedication to their tasks, which may ultimately affect the nation’s security. In addition, the Pakistan military’s modernisation plans and induction of new weaponry and equipment, which are essential for sustaining a modern and effective military force, may be impacted by financial unrest.
Pakistani Financial Structure
Pakistan’s GDP is the army’s GDP, which controls everything from the military to civil gas stations, hawala banks, export-import companies, etc. Almost $26.5 billion is the total annual revenue generated by the businesses managed by Pakistani Army Generals, which is larger than India’s Adani or Ambani groups. Notably, this $26.5 billion represents about 10% of one entity’s ownership of Pakistan’s annual GDP. The Pakistan Army is the wealthiest business entity in the entire globe according to this ratio.
According to SIPRI, Pakistan’s military spending surged from 10394.50 USD in 2020 to 11304.80 USD in 2021. The rapid increase in military expenditure is not unusual for the local population.
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Between 1951 and 2021, Pakistan’s military expenditure increased by USD 3113.09 million on average, with a record high of USD 11732.10 Million in 2018 and a record low of USD 153.40 million in 1957. By the end of 2022, researchers and Trading Economics’ global macro models predicted that Pakistan’s GDP Annual Growth Rate would be 2.80 per cent. The econometric models also expect that the Pakistan GDP Annual Growth Rate will generally trend between 3.50 per cent in 2023 and 5.00 per cent in 2024, provided the country’s economy comes on the correct track. Military Trading Economics global macro models and experts project Pakistani spending to reach USD 12,000.00 million by the end of 2022. This prediction indicates that Pakistan’s military expenditures in 2023 will probably be around USD 12,000.00 million, given the Pak Army’s obstinate stance in the past.
The Pakistani military has a substantial stake in several industries, including real estate, construction, agriculture, and mining. However, since the military withholds financial data regarding its economic endeavours, it is impossible to determine the precise net worth of the Pakistani military-run business empire.
Defence Minister Khwaja Asif informed, “the National Assembly of Pakistan” in a written response to a senator from “the Pakistan People’s Party’s” inquiry that there were nearly 50 “projects, units, and housing colonies” operating in the nation under the administrative supervision of “Fauji Foundation, Shaheen Foundation, Bahria Foundation, Army Welfare Trust (AWT), and Defence Housing Authorities” (DHAs).
The Pakistani military is involved in a number of commercial ventures, including managing retail centres, hospitals, schools, colleges, and universities, as well as developing housing projects. These companies are operated under the auspices of philanthropic organisations such as the “Fauji Foundation (Pakistan Army), Shaheen Foundation (Pakistan Air Force), Baharia Foundation (Pakistan Navy),” “Asakari Foundation, Army Welfare Trust, Defence Housing Authority (DHA),” and so on. The very reason they are classified as charitable organisations is to avoid paying taxes. Although the well-being of service members is these organisations’ stated goal, all profits go to their shareholders, who are none other than retired Army Generals. Army General post-retirement perks in Pakistan are very generous.
Solution with Pakistan Military
Any country’s security depends on defence funding; therefore, any significant reductions could have negative repercussions. The operations may be complicated to perform in light of the TTP’s strikes in Pakistan becoming more frequent and intense. In addition, Pakistan’s armed forces may be significantly impacted by the country’s financial unrest. Since the government is the primary funding source for Pakistan’s defence budget, cutting back on defence spending may be necessary to reallocate funds to other priorities if the government has trouble making ends meet. However, some observers have noted that a country’s security situation may be further impacted if there is increasing political instability due to financial instability. They contend that a struggling economy can leave Pakistan more open to challenges to its internal and foreign security, which could have detrimental effects on the armed forces.
In Pakistan, spending is anticipated to total 12 billion USD in 2022. However, if they can control their spending by just 10%, the Pakistani military could be able to manage 1.2 billion USD in total, which would be more than what Pakistan is asking for from the IMF. The economy will also benefit if military-run businesses pay taxes at the same rate as privately owned, for-profit companies. The Pakistan Army should concentrate on defence operations and cease all commercial ventures as the best course of action. The prospect of a commercial enterprise closing down by the Army, however, is quite remote because these businesses offer options for post-retirement employment in addition to being sources of additional funds.
The country believes that the Pakistani Army is at war with India, a neighbouring country that is not Islamic, in order to safeguard Islam. To do this, the Pakistani Army regularly trains jihadists and terrorists who are frequently dispatched to India to commit terroristic acts. These anti-Indian sentiments among the local populace will undoubtedly bolster the Pakistani military’s claim to a significant role in allocating funds.
The Pakistan Army has the power to stop these illegal operations of arming and training terrorists, as well as providing weapons and ammunition, and to assist the country in making better use of its resources and revenue. The economic unrest has provided the Pakistani military with a chance to make amends for their dark past and present themselves in a more positive light.