The issue of Pakistan’s defence expenditure keeps surfacing from time to time. According to one school, there should be unilateral defence expenditure reduction to make space for spending on development and social sectors.

Defence expenditure is viewed as a ‘holy cow’ which would continue to obstruct development. Another view is that of defence strategists who would much rather see increase in the same for defence preparedness due to apparently intractable tensions in the region which, according to them, are more possible to resolve on the battlefield than on a negotiating table.

A more moderate view calls for emphasis on dialogue and resolution of disputes while maintaining a minimum level of defence preparedness. While this minimum level itself remains open to debate, a fourth view would advocate overall economic development that would provide for defence as well as entitlements to guard against those economic exigencies from which people cannot protect themselves. For, in a developed liberal economy, people should be able to fend for themselves in normal times and the state should be responsible for territorial defence.

Since the IMF is driving this country’s economy in the above liberal direction, its sister concern’s concern for Pakistan’s defence expenditure is engaging. While it is highly appreciated that the World Bank is rethinking Pakistan’s economic issues such as poverty and is proposing meaningful land reforms to hit the root cause, its proposal to slash Pakistan’s defence expenditure needs closer examination.

In its report Poverty in Pakistan, vulnerabilities, social gaps, and rural dynamics, the World Bank says, “High levels of military spending absorb a significant part of public resources. Even following the substantial reductions in defence spending as share of GDP, 29 per cent of the budget still remains devoted to military expenditures—a very high share by international standards” (Dawn, 26-9-02). The IMF also seeks further reduction in defence expenditure (Dawn, 8-11-02). And, all of this at a time when tension with neighbouring India is at all-time high and military forces are deployed on the borders.

This is not to say that the two parties to the conflict should keep fuelling tensions and thereby keep justifying higher defence expenditure. However, the “directive” from the IFIs is cause for concern on three counts, including (i) the current symptomatic, albeit charged, regional situation, (ii) the direction of Pakistan’s economic reform which is driven equally by global and domestic politico-economic considerations and (iii) the global anti-terror campaign.

First, Pakistan’s defence expenditure has declined in terms of share of total expenditure from 73 per cent in 1949-50 to 57 per cent in 1959-60. It increased to over 69 per cent after the 1965 war in 1965-66 and then declined to 36 per cent in 1988-89. It increased to over 38 per cent in 1989-90 and since then it declined to a level lower than that quoted as above in the World Bank report. As for the defence expenditure-to-GDP ratio, it increased to 5.6 per cent in 1965-66 after the 1965 war, dropped to 3.8 per cent by 1969-70 and rose back to 4.3 per cent in 1970-71 which was another war year.

It went further up to 7.5 per cent of GDP in 1971-72 before falling to 6 per cent in 1979-80. During the second half of the decade of the 1980s, it hovered around 7.5 per cent or above it. It was at 7.3 per cent in 1992-93 before falling to 5.7 per cent of GDP by 1997. One can, therefore, eyeball a link between Pakistan’s defence expenditure-to-GDP ratio and the war years or tension in the region including Afghanistan.

For, economic growth would make sense only within the precincts of a nation-state. Cause behind the tensions is relegated to secondary importance once tensions are ignited to the level of conflagration. The symptoms have to be addressed first under such circumstances. Defence preparedness gains primacy. It is, therefore, a function of domestic security requirements. It cannot be gauged against an international standard of 2.5 per cent in 1997 which may have been dominated by the weight of large economies whose defence expenditure even if high in absolute terms would still comprise a smaller fraction of their huge GDPs.

As for regional tensions, insecure countries had even higher defence expenditure-to-GNP ratios than Pakistan’s in 1997 particularly many Muslim countries in the Middle East. Further, Israel’s was at 9.7 per cent, DPRKorea’s at 27.5 per cent, Angola’s at 20.5 per cent, and Russia’s at 5.8 per cent to quote a few. This shows that a country’s defence expenditure indicators are driven by its own security concerns and not by international standards on any one particular indicator due to the issue’s all-encompassing nature. Pakistan can, therefore, not be compelled to aim at an international standard in this case that may jeopardize its national interest. So, while Pakistan’s defence expenditure indicators have over time reflected both security concerns and a declining trend now, it is this renewed emphasis on further defence expenditure reduction that requires deeper analysis at a time when Pakistan is facing multifarious external and internal pressures.

Since this pressure for defence expenditure cut is now coming as a part of IFIs’ so-called “reform” effort, we need to also explore the political economy of IMF’s funding packages that Pakistan has received rather generously and that we set out implementing religiously in their most undiluted form ever in the country. Pakistan’s $1.3 billion three-year Poverty Reduction and Growth Facility (PRGF) was approved promptly by the IMF even though there was a military government at the helm at a time in history when the major donor capitalist countries had crossed the hoop of a rival ideology and were, therefore, in no practical need to ally with military rulers.

Since the end of the Cold War, new alliances would be built only with democratically elected governments. A premium would be placed on democracies that also stood for human rights. Under such circumstances, financial support to a military government would be least expected or resisted. However, it was the threat of growing international terrorism that changed the rules of financial assistance once again. Premium would be placed on the strategically significant in the anti-terror campaign irrespective of the form of government. Being strategically located, amongst other factors, Pakistan’s military government would receive strong support from IFIs’ major financier and victim of a major terrorist attack on September 11, 2001.

The USA would now ally with Pakistan’s military government due to an ostensible congruence of goals on the issue of anti-terrorism. Ironically, this would further facilitate flow of IFIs’ funds into Pakistan. It was against this backdrop that a $1.3 billion PRGF package was approved by the IMF in December 2001. Its 2nd, 3rd, and 4th tranches were released in calendar 2002 with waivers on certain performance targets in general and on the tax revenue and fiscal deficit targets in particular. Tax revenue and fiscal deficit targets used to be some of the most sensitive ones for the IMF in the 1990s on which there would be no let-up. Not so surprisingly in the face of rising terrorism, the IMF displayed flexibility on this key target and would release the tranches despite a shortfall in the fiscal performance criteria. Waivers on fiscal performance targets were also granted when funds were released as a part of IMF’s $596 million 10-month Standby Arrangement (SBA) that was approved on November 29, 2000 and that concluded in September 2001. It might help to know that by July 2000, the world had become increasingly concerned about the issues of CTBT, Afghanistan, terrorism, and border tensions with India. The SBA was viewed as an effort to keep our strategically important country engaged.

As for Pakistan, the military government would reciprocate as, being military in nature, it would be rational to work towards a frictionless economic relationship with the Western financiers. As they tried to gain legitimacy by playing ball on the economic front, the event of September 11, 2001 would place the issue of CTBT on the back-burner as it was overshadowed by a heightened concern for that of terrorism.

It is against the above backdrop that IFIs’ signals for reduced defence expenditure by Pakistan should be studied. It is being studied by students of political economy for quite some time now that IFIs’ lending is driven more by the economic and political interests of the home countries as compared to those of the host countries. IFIs’ signals and directives should, therefore, be evaluated against the touchstone of goal congruency.

Given the current global political economy, the political goals of the financiers are expected to be overriding their economic ones. The single most important global political target is terrorism whose symptoms the world powers are all set out to address first. Or, the intensity of the symptoms is so strong that it has diverted all attention away from the causes. The world mood is, therefore, not to look at the causes in Palestine or Kashmir or Chechnya with great interest. So offended are they at the audacity of the reaction to the causes that they are all out to teach them a lesson irrespective of the origin of the reaction. If that be the world mood, however much one may disagree with this drift, it becomes imperative to view the complication in the situation pragmatically.

For all practical purposes, the target is “terrorism” as manifested in its symptoms alone. It should, therefore, become imperative for all strategic players to keep assessing their relative position in the global anti-terrorism configuration. If Germany has to seek the support of France in its opposition to USA’s intended attack on Iraq, the lesser players, however “key” they may have been at some point in time, should be playing it safer. For, there are no fixed positions in such coalitions. The positions keep shifting according to the exigencies that keep unfolding and moving with the passage of time.

Having said the above, it is for international relations experts and political scientists to determine how permanent or transient is Pakistan’s position as USA’s ally in the war on terror. If the position of Saudi Arabia, an all-time ally of the US, is being examined by American think tanks and officially appointed commissions; could Pakistan escape their microscopic lens? Is Pakistan providing or eliminating reasons for such scrutiny? Should we be optimistic about it or realistic? After Iraq, would it be Iran and Syria or another duo? If another duo, who might they be? Do we, therefore, need greater defence preparedness or less? Who determines our defence preparedness and why so? We seem to have come full circle. Are the answers anybody’s guess?