Defense Expenditure of Pakistan Course title

Defense Expenditure of Pakistan
Course title: Public Economics
Dept/Semester: BPA-4
Submitted by:
Sania Saeed
Alishba Ahmed
Zaina Hameed
Javeria Khan
Table of Content:
Defense Expenditure———————————————————————-1
Factors—————————————————————————————1
Pakistan’s Defense Budget—————————————————————–2
Defense Expenditure in Times of War—————————————————-5
Defense Expenditure In Different Regimes———————————————-7
Pakistan Military Expenditure: (1956-2018) ——————————————-9
Conclusion———————————————————————————12
References————————————————————————————13

Defense Expenditure:
A military expenditure or military budget is also known as defense budget. It is the amount of money or other financial resources devoted by the state to rise and maintain the armed forces or some other methods necessary for defense purposes.

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It often reflects how strongly a country perceives the possibility of threats against it, or the amount of violent behavior it can handle. It also gives a proposal that how much of financial resources should be provided for the next fiscal year. This budget size also suggests the ability of the country to fund military actions. Government of Pakistan put military pensions under the civilian budget. Defense expenditure is an undesirable spending and burden on an economy because expenditure on defense diverts the resource allocation of that economy from development projects. Pakistan is poor country with a ranking of 156th in world per capita, and stands 35th in defense spending ranking. Defense expenditure of Pakistan remains high and takes a large portion of gross domestic product (GDP) 4.5% on average from 1995 to 2009 due to longstanding conflicts and arms race with India and its geopolitical position in Afghan war and internal incidents of terrorism.
Defense expenditure can affect the economy either positively or negatively. They are considered as unproductive, have higher opportunity costs and crowd out investment. They slow down the speed of the economic growth by distorting the resource allocation. But opposite to this view, they also have growth-promoting potentials, cause increase of aggregate demand, employment generation and production. They show spread out effects on the economy.

Factors:
Factors include:
the size of the economy of a country,
willingness of the government and people to spend on military activities,
other financial demands on those activities
Generally, spending on international law enforcement is excluded from defense expenditure.
Pakistan’s Defense Budget
In fiscal budget 2012-13, the Government of Pakistan allocated additional Rs.50 billion for the defense budget. According to official defense budget documents for fiscal year 2012-13, about 10% or nearly Rs.545 billion (about $5.82) compared with Rs.495 billion in 2011-12 was allocated for defense. The main cause of Pakistan’s defense budget deficit is the reduction in US defense aid.
Defense Expenditure of Pakistan by South Asian Countries as Percentage of GDP 1988-2010 
Year Pakistan India Bangladesh
1988 6.2 3.6 1
1989 6 3.5 1.1
1990 5.8 3.2 1
1991 5.8 3 1
1992 6.1 2.8 1.1
1993 5.7 2.9 1.2
1994 5.3 2.8 1.2
1995 5.3 2.7 1.3
1996 5.1 2.6 1.3
1997 4.9 2.7 1.3
1998 4.8 2.8 1.3
1999 3.7 3.1 1.3
2000 3.8 3.1 1.3
2001 3.9 3 1.2
2002 3.7 2.9 1.1
2003 3.6 2.8 1.1
2004 3.4 2.8 1.1
2005 3.3 2.8 1
2006 3 2.5 1
2007 2.8 2.3 1
2008 2.8 2.6 1
2009 2.8 2.9 1.1
2010 2.8 2.7 1.1

This graph shows different trend in south Asian countries.

Pakistan’s economy has passed through many critical challenges such as the sharp rise in food and oil prices combined with natural disasters in 2010 and 2011.  Governance and security issues pose the most serious challenges to achieving decent growth rates and investment to GDP which was the lowest for 37 years. In 2011-12, Pakistan’s economy grew by 3.7 percent against the targeted growth rate of 4.2 percent. The country faces high public debt and the rate of inflation was double-digit for the last five years. Pakistan’s defense and debt servicing expenditures have declined during the last two decades. Debt serving consumed about 39.9 percent of total revenues. During the last fiscal year the country’s public debt stood at Rs.856 billion, while debt servicing stood at Rs.1, 024 billion out of which Rs 821 billion was on account of domestic debt servicing. During the Musharraf era, Pakistan’s total public debts increased from Rs 3,200 billion to Rs 6,700 billion. “The present government has pushed the tally to Rs 12,800 billion.

Defense Expenditure in Times of War:
The military expenditure is an extremely important part of any country. It shows how much a country feels vulnerable to the outside world. There has an upward trend in the defense expenditure, especially after the World War II and the significant change in the geopolitical scenario. Over the last fifteen years, It is highly observed declining trend followed by development expenditure of Pakistan because of huge defense expenditure in comparison with health, education and other developing expenditure , defense spending stands with higher percentage.

Due to the internal security and terrorism, there is seen an increase in the defense expenditure in Pakistan. At present, internal security issues particularly that of ever more violent domestic terrorism is costing even more on the government expenditure towards defense sector. According to the documents of budget, for the fiscal year 2014-2015, the defense budget amounts to Rs. 700.2 billion as compare with Rs. 627.2 bn allocated in the previous fiscal year, which shows an increase of Rs 73 bn (these figures do not include Rs 163.4 bn for the pension of military personals). Almost 1113 billion has been allocated for military which is about 28.2 percent of country’s total fiscal budget. This has lead to the spending of money for the much-needed development projects. As in the total budgetary outlay the share of the current expenditure is 80.5 percent. Military expenditure slows down development by diverting government resources that could be used for infrastructure, public services, or lower taxes.
According to the UN Committee for development planning, the most immense barrier to the development is the worldwide expenditure on the national defense activity. The bad effects of defense expenditure in the developing countries like Pakistan are expected to worsen poverty because almost all of the military hardware is imported. According to the Stockholm International Peace Research Institute (SIPRI), military expenditure of the world in 2012 is estimated to have been $1756 bn, which is 2.5 percent of World’ total GDP. In the fiscal year 2012, Pakistan spent Rs 507.159 bn on the defense sector which comprise 12.9 percent of total government expenditure.
Unluckily, Pakistan is still among the poorest countries and is facing many problems such as poor infrastructure, poor health status and poverty. This might be due to the fact that Pakistan spend a great amount on military expenditure which crowd out growth-leading expenditures such as education and health expenditure. A large portion of population i.e. 45.7 percent people in Pakistan are living below poverty line. And out of these, 36.5 percent of the total population is living in chronic poverty. On the other hand, the large size of defense expenditure in presence of high budget deficits, declining development expenditure and increasing debt services on account of blowing up public debt got the attention of researcher on the subject. Besides these factors, Pakistan’s quest of nuclear capability, its arms race with its India and rate of poverty also got the attention of foreign researchers.
Defense Expenditure In Different Regimes.

center1960245Pakistan due its geographicla and strategic importance has faced internel and externel threats , due to which its defense budget has been fluctuating ever since . Pakistan has also seen militry rule and ever since the war on terror began the defense budget of pakistan has kept on increaing over the years. Being a militarily vulnerable country pakitanhas always had the need of generous amout of defense spending .

Iskandar Mirza regime (1956-1958)
Iskander Mirza was the first president of Pakistan and the defense secretary from 1947 to 1950.During his regime several troop were deployed in East Pakistan (Bangladesh). In 1951, he subsidized the liaquat administration’s decision of appointing the local chiefs of group of workers of the navy, air force, navy, and marines, and disregarded deputation appointments from the British navy. Hence the initial defense budget was neither to low nor too high. He declared Marshall law. After general Ayub khan took control of the office.

Ayub khan’s Regime (1958-1969)
During his era nuclear issue was focused and recommendations for army use of nuclear technology whereas Rs.721 million were spent on civil use of technology and nuclear plants were initiated. Furthermore the physicals size of Pakistan’s army grew from 5.79% (1960s) to 9.78% (1966) until being brought down to 6.1% (1967). Pakistan during Ayub’s regime was provided with generous donations from the U.S along with aircrafts and weaponry. However in the 1950’s Pakistan defense budget was reduced drastically.

Yahiya khan (1969-1971)
Despite all fiascoes he was promoted to the rank of lieutenant general by Ayub’s khan. He commanded the 1965 war. After which an embargo was imposed upon both India and Pakistan further the U.S had clearly stated that it will not fund the both states in matter of war anymore. Hence Pakistan then turned to china for military aid. The Percentage of GDP has risen by Yahiya’s regime.

Zulfikar Ali Bhutto (1971-1973)
Zulfikar Ali Bhutto was known in history for taking initiative steps for nuclear program making Pakistan a nuclear state despite of the consistent oppositions of the U.S. Air operations were launched and other Naval operations were also carried out with Iranian Military Cooperation. Military budget further had to increase when SSG troops were deployed as a result of the intervention of Iran Iraq war. Due to the support given to Baluchistan Liberation Army by Saddam Husain’s administration. He military police arrested the Iraqi foreign representative. These entire incidents were the cause of increase in the military budget during Bhutto regime.

Zia-ul-Haq (1978-1988)
Zia-ul-Haq was military dictator and four-star general and served as the 6th President of Pakistan after declaring martial law in 1977.A military coup also took place with his regime which was to have been planned by him against Z.A Bhutto .The intervention in Afghan -soviet and active collaboration with U.S during then required the deployment of armed troop around Pak-afghan borders. All these happening increased military budget.

Pervez Musharraf (2001-2008)
General Pervez Musharraf had several military challenges when he was appointed as president after the declaration of the fourth marshal law. With the uprising of the Taliban in the region and unpopularity he received after the Lal –masjid incident. Furthermore he also has a significant role to play in the ongoing proxy war.

Benazir Bhutto (Pakistan people’s party tenure):
During her tenure as the first women prime minister, a small unite of Pakistan army was sent to Afghanistan. While this happened the Taliban had taken control of the afghan government. Under her government, Pakistan had recognized the Taliban regime as legitimate system of government. In 1989, the Pakistan Army exposed the alleged Operation Midnight Jackal against the government of Benazir Bhutto. When she learned the news, Benazir Bhutto ordered the arrest and trial of former ISI officer Brigadier Imtiaz Ahmad and Major Amir Khan, it was later revealed that it was General Beg who was behind this plot during her rule she allowed the Taliban to open an embassy in Islamabad. Her relation with the army had seldom been at peace.

Nawaz Sharif(Pakistan Muslim league (N) Tenure):
The government of the former and recent Prime Minister Nawaz Sharif and the interest of his government had seldom been in harmony with the military of Pakistan. His government was first overthrown by the Marshall Law following the appointment of General Pervez Musharraf and for the second time by the judiciary and the opposition. The military spending in his regime was neither too high nor too low but was balanced enough other than the Line of control violation done by the Indian forces.

Pakistan Military Expenditure: (1956-2018)
GRAPH
USD MILLION

Explanation of graph:
We make a military expenditure graph from 1956 to 2018. We take USD Million on Y-axis and the Year on X-axis. Military expenditure in Pakistan averaged 4145.99 USD Million from 1956 until 2017 reaching all time high. But in the year, 1957 military expenditure in Pakistan are recorded low of 546 USD Million because of low GDP (gross domestic product). But in the year of 2008 the military expenditure in Pakistan are recorded as 6851.6 USD Million are high as compare to 1956. In the year 2009, the expenditure in Pakistan are recorded high of 7060.9 as compare to 2008. In 2010, the expenditure in Pakistan is recorded as 7322.3. In 2011 to 2017 there is minimal increase in expenditure whereas after that the expenditure has increased rapidly. In 2017 the military expenditure are recorded as 10378.2 USD Million
Pakistan Government Last Previous Highest Lowest Unit
Government Debt to GDP 67.20 66.50 87.90 56.40 Percentage
Government Budget -4.90 -5.30 8.80 -8.80 Percentage of GDP
Government Budget Value -1349.30 -1456.70 0.00 -1833.90 PKR Billion
Government Spending 1587677.00 1405639.00 1587677.00 840345.00 PKR Million
Government Revenue 4447.00 3931.00 4447.00 2566.50 PKR Billion
Government Debt 22691.00 21860.70 22691.00 9266.90 PKR Billion
Fiscal Expenditure 5796.30 5387.80 5796.30 732.50 PKR Billion
Credit Rating 19.90 Military Expenditure 10378.20 9973.80 10378.20 546.00 USB Million

Explanation of Table
This table show that the government debt to GDP in previous data is low that is 66.50 and the highest that is 87.90 and the lowest is 56.40 because of expenditure in Pakistan and it is recorded in percentage. In the previous data the government budget is low that is recorded in -5.30 and the highest budget is 8.80 and the lowest budget that is recorded in the previous one is -8.80 and it is also measure in percentage of GDP. In government budget value the pervious data is recorded in -1456.70 and it is low as compare to highest value and is recorded as 0.00 that is there is no increase and decrease in government budget value but the lowest data that is recorded as -1833.90 and it is low as compare to the previous one and the values are recorded in PKR Billion. The next is government spending the previous data shows that 1405639.00 are recorded and the highest government spending is 1587677.00 and the lowest data is 840345.00 and it is also recorded in PKR Billion. Government revenue the previous data shows that there is low revenue government that is 3931.00 and the highest government revenue is recorded as 4447.00 PKR Billion but the lowest government revenue is 2566.50 as compared to previous one. The next is government debt the previous data shows that there is low debt as compare to highest one and the lowest data is recorded as compare to previous data that is 21860.70. The fiscal expenditure of previous data is 5387.80 are recorded and the highest data of fiscal expenditure is 5796.30 and the lowest data is 732.50 and it is also recorded in PKR Billion. The credit rating of the current year is 19.90 there is no unit. The last one is military expenditure and the unit is USD Million. The previous data of military expenditure is 9973.80 recorded but the highest data that is recorded in the current year is 10378.20 but the lowest data that is recorded 546.00 and is low as compare to previous one.

Conclusion:
. It found the relationship between long run relationships is not only in the case of Pakistan, but exists for all Asian countries, namely: China, India, Bangladesh and Pakistan.
Pakistan badly needed to be self-sufficient in domestic defense industry, which can lead to curtail in defense budget, it will create employment resources and funds will be available for developing programs. Although, because of political and regional instability bound this region to pick guns not butter from guns verses butter dilemma. Although scarcity and inefficiency in productive sectors indicated to choose butter instead of guns. Internal and external terrorism are not allowed to curtail in defense budget, especially in the current situation where India is trying to create another big dispute against Pakistan. It was suggested Pakistan’s defense industry needs to be self-sufficient with long-run sustainability by providing essential military equipment to armed force, through this import expenditure will reduce and it can provide support to overall military spending. Furthermore, another policy which needs to be done is to achieve efficiency level or increase efficiency in all economic sectors, by this Pakistan will be able to get rid of International Monetary Fund (IMF’s) fund, which is the root cause of less developing expenditure.

In the end, we conclude that defense spending direct effects on economic growth. It ignored possible indirect effects, such as employment, investment, law and order and political aspects of defense spending. Economic growth can   limit the growth of public debt burden and expenses and avoid future debt traps and stronger taxation mechanism.

References:
Defense Expenditure, factors
https://en.wikipedia.org/wiki/Military_budgefile:///D:/user%20data/my%20documents/Downloads/33807.pdf
Pakistan’s Defense Budget
http://ibimapublishing.com/articles/JESR/2017/280356/Defense Expenditure in Times of War
www.pide.org.pk/pdf/PDR/2015/Volume4/875-894.pdfDefense Expenditure In Different Regimes.

www.ndu.edu.pk/issra/issra_pub/articles/margalla…/08-Military-Spending.pdfPakistan Military Expenditure: (1956-2018)
https://tradingeconomics.com › Countries › Pakistan
https://tradingeconomics.com › Countries › Pakistan › Military Expenditure
Conclusion:
http://ibimapublishing.com/articles/JESR/2017/280356/

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