Even zero defense budget will not solve Pakistan’s economic problems…..

By: Hussain Saqib

A ferocious debate has been triggered in print and electronic media by some vested interest groups that Pakistan’s military consumes the largest share of nation’s economic pie. The nation is being made to believe that Pakistan’s military is the root-cause of economic woes of the country. These voices may sound music to the ears of the audience across the borders and across the Atlantic but these are efforts to distort the facts and tarnish the image of the security establishment. This is being done to mislead the masses who still consider their military as the savior of the last resort (and first choice) and place it in high esteem, much higher than those who they are compelled to vote into power to repent later.

Consider these facts: in 2007, Pakistan’s defense expenditure, in dollar terms was less than 3% of its GDP. With continuous downslide of rupee, this figure must have fallen to close to 2%. With defense budget at 3% of GDP, Pakistan was ranking at 46 in world nations to have lower chunk of its national income allocated to defense. (CIA-The World Factbook)

Consider the fact that even with this poor allocation, Pakistan has the 7^th largest defense force, a feat of most economic, efficient and effective security apparatus all Pakistanis should genuinely be proud of.

If we look at the actual budget figures for the year 2010-11, Pakistan raised Rs 2,236 billion from its taxes. After disbursement of provincial share (Rs 997.7 billion), the government was left with only Rs 1,238 billion. Out of this, Rs 855.5 billion was paid in debt servicing and repayment of long-term loans. After meeting other obligatory expenses like Rs 395.8 billion for subsidies and Rs 92.688 billion for pension liabilities, the national kitty was already short of Rs. 105.765 billion. (Source: Budget in Brief, 2011-12 issued by Government of Pakistan, Finance Division)

Consider: if you fire military and civil personnel and discontinue the development altogether, will you still be able to meet all your obligatory expenses from the resources you generate? The answer is in negative. The mother of all economic problems of Pakistan is its elite based taxation system which grants exemptions to rich and mighty. They are immune to any tax liability. The country is being run out of indirect taxes contributed by the majority. Pakistan ranks at 197 among 210 nations in terms of tax-to-GDP ratio. This is due to a structural distortion; Agriculture, which is more than one-fifth of the economy and which is the source of wealth and political strength for the political elite, is outside the direct-tax regime, even in 21^st century.

Consider another fact: In Pakistan’s economic history, there have been periods of “boom and bust”. Ironically, economy invariably grew phenomenally (boomed) during the periods of so-called “military dictators” but it performed poorly (busted), like today, during so-called democratic and representative governments. (See chart above.)

The economic problems of the country are not a direct consequence of military and civil expenditure. These are due to willful mismanagement of economy by the incompetent political managers whose fundamental aim is to please and patronize the elite at the cost of masses and at the cost of development.  Since the “dictators” have no such compulsion, the economy grows in the periods of their rule. But they too could not understand the potential of untapped economic resources.

Resource mobilization is the only panacea to fix Pakistan’s economy. Rich and mighty will have to cough up portion of their wealth, genuine or ill-gotten, to save the economy, the country and their own accumulated fortunes.

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An elite-based taxation system can be a serious threat to national security