Pakistan's economic crisis is due to military spending and low tax base

DP Srivastava

Shortly after his election as Pakistan's prime minister for a second term, Shehbaz Sharif said his government would seek help from the International Monetary Fund (IMF). Pakistan is currently receiving the 24th IMF aid package. Asking him for a new loan is a sign of Pakistan's dire economic situation. At the same time, imprisoned former Pakistani Prime Minister Imran Khan has asked the IMF to take into account the country's “political instability” in any new bailout negotiations.

According to his lawyer, Ali Zafar, Imran wants the IMF to request an independent audit of the controversial February 8 national elections before continuing negotiations with Islamabad. Thus, economic uncertainty is accompanied by a divided political system.

Pakistan's economic problems are due to him. The country has wasted enormous resources in the defense budget, which is disproportionate to its security needs. Pakistan started the four wars with India. It is also at odds with its two Muslim neighbors – Sunni Afghanistan and Shiite Iran. In recent months, the Pakistani army has carried out strikes against these two countries.

The country's high military spending is accompanied by low savings and a low tax base that leaves the wealthy outside the tax net. Eighty percent of Pakistan's revenue comes from indirect taxes, the incidence of which falls disproportionately on the poor.

Pakistan follows a budget cycle from July to June. The budget for the current year was presented in June last year. According to Pakistani media reports, the defense allocation accounted for 12.51% of the total budget in Pakistani rupees. 14,500 billion. That was an understatement. The figures cited for the defense budget omit a whopping sum of Rs. 563 billion for military pensions. Additionally, the ratio (12.51%) represents the defense budget as a proportion of the total budget, which also includes the budget of the four provinces.

Defense in all countries, including Pakistan, is the responsibility of the federal government. Of the total tax revenue of Rs. 9.2 trillion, the federal government's share is Rs. 9.2 trillion. 6.887 billion. As a percentage of federal revenues, the defense budget is 33.39%. The army has captured the majority of resources at a time when the country's economy is on the verge of collapse and the population does not have enough to eat. There were food riots last year.

The defense budget of Rs 1.5 trillion exceeds the allocation of the four provinces combined. It dwarfs the development budget of Rs.950 billion. On May 9 last year, the mob attacked the corps commander's residence in Lahore and also entered the army headquarters in Rawalpindi. Television images of people emptying the corps commander's kitchen refrigerator of frozen strawberries and falsas tell a story of desperation. Although strawberries are a luxury item, falsa is a common fruit in the subcontinent.

Miftah Ismael, the former finance minister, said in a television interview that Pakistan was at real risk of falling into a debt trap. He was polite. He already did it. The debt service payment of Rs. 7.303 billion is more than the federal government's share of revenue. This means she has to borrow more to pay off her existing debts. In other words, paying interest leaves no money to run the government, which must be entirely financed by new borrowing.

The Pakistani military has always used geopolitics to manage the economy. In the 1950s and 1960s, it received massive American funds to fight communism. Instead, he embraced communist China to fight India. In the 1980s, it received American and Saudi aid to fight the Soviet Union. After September 11, it received American aid to fight terrorism. Instead, he resurrected the Taliban who are now in power in Kabul. The United States' exit meant an end to the rents it collected for the passage of American military supplies to Afghanistan, which were used against the Taliban. The focus of international politics has shifted to Ukraine, Taiwan and Gaza. Will China bail it out? The recent terrorist killings of Chinese workers in Khyber-Pakhtunkhwa should prompt the Chinese to be more cautious.

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Moody's lowered the country's credit rating. As a result, Pakistan cannot benefit from the $6.1 billion in external commercial borrowing, which is included in the budget. The IMF could intervene but will require belt tightening. Will Shehbaz Sharif's government have the political will to get started? He has no options. But PPP, its coalition partner, is unlikely to want to share the blame. This is why he stayed out of government. Meanwhile, inflation exceeds 30%, making the condition of the common man miserable.

(The author is the former ambassador and author of Forgotten Kashmir: The Other Side of the Line of Control)

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