Addiction to arms and debt, not extremism, is Pakistan’s biggest problem

The Army establishment may or may not have won this round of the turf battle with the CIA by having used Raymond Davis as a bargaining chip but this should not and cannot obscure Pakistan’s life and death issue. Which is: historically its Army has not shown enough realization that the cessation of all external and domestic conflicts is the most critical and essential pre-condition for Pakistan to survive as a viable nation-state.

The security state of Pakistan’s number one problem is not extremism. It is its security establishment and its addiction to arms and debt justified in the name of “India-centricity”, non-strategy of “strategic depth” and the support for militant groups justified on flimsy grounds of a “need for strategic assets.” You don’t need F-16s and nuclear weapons to fight extremism or terrorism. During 2002-2009, Pakistan was the sixth largest buyer of conventional weapons in the world with total purchases of $12.5 billion according to the US Congress documents. This excludes spending on its nuclear program.

Is it just a coincidence that during this period, Pakistan total external debt increased by $13.7 billion to $45.8 billion in the beginning of 2009. While the spending on the nuclear program remains shrouded in secrecy and is not subject to any parliamentary or judicial oversight, the recent reports indicate that Pakistan has nearly doubled its nuclear arsenal to more than 100 weapons in a few years and appears on track to soon surpass Britain as the world’s fifth largest nuclear power. That may or may not be an exaggeration but Pakistan’s possession of a large number of nuclear warheads is not a secret.

We are borrowing to buy and build arms and sinking into debt while maintaining the myth that we need to borrow for our economic survival and development. It is important to point that in the recent years the net official aid flows (that is aid disbursements from multilateral institutions like the IMF and the World Bank, and other governments) have turned negative because the government of Pakistan has been paying more in debt servicing (principal and interest) than it has been receiving in new loans or aid as shown in the graph.

This shows that while Pakistan has been piling on debt, it has not used the borrowings properly as is reflected by its growing incapacity to service the debt. Latin America faced a similar debt trap in the 1980s and like some of the Latin countries, Pakistan’s only practical way out may be to seek cancelation of part if not whole of the debt.

For example, foreign exchange losses contributed to about $3.1 billion increase in Pakistan’s external debt during 2007-2008 alone. Many economists, journalists, politicians, analysts, leading columnists, TV anchors, and some former generals do not seem to be aware that:

(a) actual quantum of net aid flows is small (less than one percent) compared to the size of Pakistan’s economy,

(b) almost all the “visible aid” is used to repay the past loans,

(c) the biggest foreign exchange utilization in the past decade seems to have been for the purchase of arms, and

(c) one reason for the rapid rise in Pakistan’s external debt in 2008-2010 was the currency losses (and not ‘new aid’) which could have been avoided if the ministry of finance and/or the State Bank of Pakistan had the necessary expertise to do so.

The above figures do not include Coalition Support Fund (CSF) payments made by the United States government as reimbursements for the expenses incurred by the government of Pakistan. The CSF payments cannot be termed as aid not only because they were reimbursements of actual expenses but also because they mask the more important fact CSF monies have been insignificant when compared with the actual economic (not to mention the human losses ) costs of the “War of Terror” suffered by Pakistan. These are as follows:

CSF Payments US $millions

2006   2007   2008   2009   2010

1260   1127    1536    1674    2726

Consequently, Pakistan now spends more on debt servicing than on defence, and seven times more on arms than on primary schools. In October the government projected that it would increase its defence budget by 25%, or 110 billion rupees, to 552 billion rupees for the current fiscal year while slashing spending on education, healthcare, and infrastructure.

Pakistan has been lucky that that overseas Pakistanis have sent billions home and have been and are the largest source of external financing and foreign exchange. Remittances from overseas Pakistanis increased from $4.6 billion in 2006 to nearly $9 billion in 2010. It is this source, more than any other source of ‘aid’ that has helped Pakistan to face difficult times. But the establishment should not rely on this bonanza. It should reappraise its priorities and take the lead in steering Pakistan away from conflicts and refocus the political economy on generating growth and employment than on arms spending and borrowing.

The army leadership can and must take the lead and put India, Afghanistan, Kashmir, and nuclear issues on the back burner and focus on nation rebuilding. It can begin this process setting an example through making deep and voluntary cuts in military expenditure and then by asking the “civilians” to do the same. Pakistan needs to make investments to repair and rebuild its administrative and physical infrastructure. Pakistan cannot achieve a sustainable growth rate necessary to support its around 2% population growth rate and reduce poverty without huge investment in basic infrastructure and human resources.

A February 2008 report by the World Bank warned, “Without adequate irrigation resources, power, and transport infrastructure, the very sustainability of Pakistan as an independent nation may be at stake as shortages could lead to increased social discontent and disharmony amongst the federation and the provinces.” Since Pakistan is so significantly behind other Asian countries with whom it competes in international trade and for investment capital, it should invest much more than the averages to catch up. Pakistan needs to spend 8-10% of its GDP on education and infrastructure. This is not possible without drastic cuts in defence and establishment expenditure, reducing corruption, and more and better tax collection.

We need peace and to put an end to all external and internal conflicts in order to restore conditions that are conducive to economic development. The army has to stop its arms spending spree and find a way to transform Pakistan from a dysfunctional debt and arms-addicted national-security state – which has been and continues to be in a state of constant tension and sometimes war with its neighbouring countries and with itself. Army holds the country together. If it does not take the lead and makes the right initiatives in the right direction, there may not be any rational reason or room for hope for Pakistan. It may be too much to expect power-broking and scheming mortals with limited intellect and vision to become saviours and nation builders overnight. But the choice is quickly becoming stark. Act to save the state of Pakistan or let it wither away under the weight of its own his history and blunders of the self-serving and short-sighted ruling elites.

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