Cash-strapped Pakistan, currently in the throes of an economic crisis and urgently seeking a bailout from the International Monetary Fund (IMF), witnessed the new Shehbaz Sharif-led government present its first federal budget, worth a projected Rs. 18.5 trillion in the National Assembly on Wednesday. Despite these daunting challenges, the government allocated a staggering Rs. 2,122 billion to defence in the federal budget, a 19% increase over 2023. This decision, made in the face of the IMF’s warnings and Pakistan’s sinking economy, raises concerns about the government’s fiscal priorities. Last year, the government allocated Rs1.804 trillion, which made up nearly 1.7% of the GDP.
Pakistan is currently engaged in discussions with the IMF regarding a crucial loan ranging from $6 billion to $8 billion. This financial support is vital for preventing a default, especially given Pakistan’s slowest economic growth in the region. Notably, in 2019, Islamabad secured a $6.5 billion three-year deal with the IMF and accessed the final $3 billion under a stand-by arrangement last year.
Islamabad’s complete dependence on Chinese arms
Defence sector expenses, the second largest component of the annual expenditure after debt payments, are a significant burden for Pakistan. They constitute the single biggest expense of the debt-strapped country, which relies on loans from friendly nations like China. Despite economic challenges, Pakistan’s military has managed to modernise, largely due to the unwavering support provided by China, its primary defence supplier. Over the past eight years, Pakistan’s military budget has more than doubled, with a majority of its major arms like fighter aircraft, frigates, submarines and UAVs sourced from China.
According to international arms tracker SIPRI, a significant 61% of all Chinese arms exports from 2019-2023 have been directed to Pakistan, a fact that underlines the depth of their relationship. The data for 2019-23 further reveals that a substantial 82% of Pakistan’s arms are sourced from China, a statistic that leaves no doubt about Islamabad’s complete dependence on Chinese arms. In a testament to the technological advancements, China launched the first of the eight Hangor-class submarines in April this year. These submarines, based on China’s Type 039A/B Yuan-class submarines, are set to enhance the Pakistan Navy’s underwater capabilities by 2028 significantly. This is just one of the many recent arms deals, including the import of two Tughril (Type 054A/P)-class frigates, SH-15 155 mm/52 calibre wheeled self-propelled howitzers, and CH-4 medium-altitude long-endurance (MALE) unmanned aerial vehicles since January last year.
The SIPRI report states that Pakistan’s arms imports grew 43% between 2014-18 and 2019-23, accounting for 4.3% of the world’s total, making Islamabad the fifth biggest arms importer globally. Pakistan continued to strengthen its arms procurement relations with China: 82% of its arms imports came from China in 2019-23, as against 69% in 2014-18 and 51% in 2009-13.
The latest data underscores the significant role China plays in Pakistan’s economy: as of April this year, Pakistan’s external debt to China stood at a substantial $26.6 billion, securing a place in the top 20 countries with debts to China. This is a stark contrast to the $7.6 billion debt in 2016, indicating a substantial increase. The International Monetary Fund asserts that China’s loans now make up a significant 23% of Pakistan’s total foreign debt, a figure that the esteemed Tricontinental Research Institute suggests could be even higher, at around 30%.
To offset its debt to China, Pakistan has recently finalized two significant defence deals. In February, Pakistan secured a $1.6 billion deal with Azerbaijan, marking its largest defence export order, to export JF-17C Block-III warplanes. Subsequently, Pakistan has also clinched a deal with Iraq to sell 12 JF-17C fighters for approximately $1.8 billion. Before these agreements, Myanmar and Nigeria had procured JF-17 Thunder jets from Pakistan. The JF-17 is a single-seat, single-engine, multi-role light fighter developed by collaborating with the Pakistan Aeronautical Complex and China’s Chengdu Aircraft Industry Corp. In light of Pakistan’s increasing debt to China, these lucrative defence deals have raised palpable concerns about its economic sovereignty.
Ravi Shankar
