While, Pakistan’s strategic allies in Washington stick to the ‘Do More’ mantra in the global war against terrorism, the long lasting war against non-state actors is beginning to take a steadily heavier toll on the geopolitically strategic but embattled South Asian country. The Government of Pakistan, under fire both locally and internationally for its alleged complicity in providing a safe heaven to the world’s most hunted fugitive, Osama bin Laden on its soil for six long years, is paying a huge price for the US-led War against Terror on the macroeconomic front.
Islamabad seems to be inching towards deadlock while security uncertainties add to its war expenditures and investment woes. On top of this, calls from its American allies to suspend Washington’s $ 3.5 billion civilian and military aid under the annual Coalition Support Fund (CSF) are posing a potential danger to the flood-stricken country’s capacity to keep macroeconomic instability in check.
The two stalled tranches from the International Monetary Fund (IMF) under 2008’s $11.3 billion Standby Arrangement are yet to be released by the disenchanted lenders. According to official data, the first nine months of FY11 saw Pakistan’s fiscal deficit widening by 25 percent or Rs 127 billion to Rs 783 billion against Rs 626 billion of corresponding period last year.
Accounting for 4.5 percent of gross domestic product (GDP), this huge deficit is primarily because of the terrorism-hit government’s what analysts called ‘uncontrolled’ war expenditures.
“(The fiscal deficit has a) tendency to easily breach six percent by the end of FY11,” said Farhan Bashir Khan, a senior research analyst at the Invest Capital Investment Bank. The government has set a budget deficit target of 5.5 percent for the outgoing financial year.
Ministry of Finance data available with Pakistan Today reveal that during July-March FY11 Pakistan’s defence spending ballooned to Rs 335.1 billion, depicting an upsurge of 24 percent or Rs 65.3 billion when compared with Rs 269.8 billion of the same period last year. Analysts attribute this increase in the cash-strapped country’s defence expenditures to its skyrocketing war related expenditure. “(The) massive surge (is) due to war related expenditures,” Khan opined.
On the other hand, the government’s development expenditures are shrinking and during the period under review totaled a measly Rs 352.7 billion against Rs 364 billion of FY10, a slump of three percent or Rs 11.3 billion in monetary terms.
Regarding the total uplift spending, the federal government’s public sector development expenditures also reduced to Rs 130.4 billion, some 23 percent or Rs 38.9 billion less than Islamabad had spent under the same head last year.
The terrorism-hit government’s non-focus on the development, a limited capacity and a priority shift towards the defence expenditures are the major reasons the analysts cited in their comments over the declining uplift funding. It is undoubtedly needless to say that ever increasing war expenses are one of the primary factors for the Rs 783 billion budget deficit which the government has been trying to bridge through external and internal borrowings.
Official statistics show that during July-March FY11 the fund-starved federal government borrowed some Rs 700 billion from the local banking system, which the economists believe took inflation beyond 15 percent in the country. The remaining Rs 83 billion were arranged through external sector borrowing to finance the budget deficit.
The need for seeking loans arose due to, what the analysts said, non-materialization of economic pledges made by the ‘friends’ and allies of Pakistan abroad. Khan said, “Non-materialisation of external support and pledges,” forced Pakistan to knock on the doors of local and foreign lenders. And that too fell heavily on the country’s already ailing national exchequer on account of interest payment. Pakistan paid about Rs 507 billion, seven percent more than Rs 473.5 billion of FY10, to service its local and foreign debts. The flow of foreign financing into the country has dropped significantly as during the first three quarters of FY11 only $1.517 billion were disbursed to Pakistan under program and project loans. Last year, disbursements under the same heads stood at $2.818 billion. Though belatedly, the top political leadership in Pakistan has reported to have started, and aptly so, looking for alternative sources of external financing in the post-Osama strain Islamabad is witnessing in its diplomatic ties with the US.
War on Terror adds to Pakistan’s financial woes
