By —Jan Assakzai
The country’s economic planners use the same method as the Greeks. The usual strategy Islamabad adopts is managing the deficit with borrowed money, contributing to the debt nightmare (both external and internal) and adding to the current financial crisis
Given the hike in defence spending in the budget for 2010-2011 presented by the federal government, the present economic crisis and means for its solution are synonymous with the Greek crisis in many ways. Both countries have more or less similar geo-political settings that have been instrumental in shaping their security and economic responses.
Pakistan has deep insecurities with respect to its much larger (in terms of territory, population and economy) neighbour and historic rival, India. Thus it has increased its already outsize defence budget by 17 percent. Likewise, Greece has also been locked in hostile relations with its powerful neighbour Turkey, and stepped back from the brink of war several times. Turkey is larger than Greece in its size of territory, population and economy.
Pakistan spends more on defence as a percentage of GDP than many countries, including UK, France, China and India (which maintain a regional reach and which also see for themselves the need to be ready to hold out against the vastly superior Chinese Army and possible US naval threat). Similarly, Greece spends more on defence as a percentage of GDP than any other EU member states, including UK, which maintains a global defence outreach, and Poland, which sees itself as holding out the powerful Russian threat.
It is true that both the countries had to face harsh budget deficits. Before the 2008 crisis, Greece’s budget deficit stood at 6 percent of GDP, which however, was later controlled when austerity measures were put in place to bring spending under control.
Historically, Pakistan has managed to survive by securing an outside sponsor. Such sponsors have sought to contain their regional rivals by taking advantage of Pakistan’s strategic location.
To this end, the US, under the arrangement of CENTO and SEATO pacts, backed Pakistan in their bid to keep Soviet Union confined in Central Asia, and then in Afghanistan. With the Soviet Union’s collapse, that arrangement had ended. Of late, the US and the EU again supported Pakistan under a new arrangement to contain non-state actor like the al Qaeda.
Therefore, Pakistan has managed to borrow money from international donors, including the IMF and the World Bank due to its geo-political importance to the West, particularly the US. For example, General Petraeus, the head of the US Central Command for the US forces in the Middle East, is believed to have called the IMF earlier this year to help out Pakistan in its budgetary difficulties.
Against this backdrop, even today Pakistan cannot plug the gap left not only by defence spending but also by meagre social spending and corruption, as Pakistan does not have internal resources to meet its deficit. The country’s economic planners use the same method as the Greeks. The usual strategy Islamabad adopts is managing the deficit with borrowed money, contributing to the debt nightmare (both external and internal) and adding to the current financial crisis.
Pakistan, like Greece to Turkey, has been proposing to India for defence cut to abate the arms race in South Asia. However, India is reluctant to accede to these proposals, as New Delhi is expanding its geo-political prowess, which means that it has to consider China, the US naval presence in the Indian Ocean and the greater Middle East in terms of general security concerns.
A growing number of India watchers in Washington and London believe that India seems to have outgrown its security concerns regarding Pakistan and the US. This is why Islamabad and New Delhi almost reached agreement on the contours of a settlement of the Kashmir issue under the rule of General Musharraf. In spite of this, later incidents, particularly the 2008 Mumbai attacks, halted the progress of talks between the two countries.
Similarly, Greece recently held a joint summit with Turkey, proposing a 25 percent cut in defence spending. The likelihood of this, nonetheless, is very low because Turkey is a rising regional power and is seeking to address its general security concerns in Caucasus, Black Sea and the Middle East. Turkey has also outgrown its security concerns with Greece. This is why it has been showing conciliatory gestures to Greece. Reduction in defence spending for Greece has become a top priority, as the IMF’s bailout package means Athens has to adopt draconian austerity measures.
Therefore, it has to accept whatever comes its way from Turkey, though this will not necessarily be palatable for either its public or its military. But years of poor economic strategy cost Greece its pride and self-esteem and provoked the anger of its people. It had to choose between draconian austerity measures and bankruptcy and it chose the former.
On the other hand, the present arrangement whereby the US and the EU are backing Pakistan in their bid to contain al Qaeda is unlikely to last forever. The US is desperate to extricate itself from Afghanistan. For the US, and the West in general, Pakistan is a tactical ally, despite Islamabad’s glee with regard to the much-trumped strategic talks with the US.
As far as the future of US willingness to provide budgetary support to Pakistan is concerned, it depends upon whether the future’s net geo-political gain from Pakistan is greater or lesser than the present net investment Washington is making. In contrast, Greece seems to have outlived its geo-political utility for the US and NATO.
Considering Pakistan is using the same economic model as Greece, it is just on borrowed times from its powerful western allies who could even make it easier for Islamabad to swallow the bitter pill of any possible harsh austerity measures, including the defence cuts, by manipulating its economic vulnerability.
Thus Pakistan’s economic future and security imperatives are beholden to the judgement call of the US (and West in general) as to when Pakistan has outlived its geo-political utility for them. So it is a matter of when, not if. A dreadful scenario for policy makers but seems far more realistic than ever. For me, I think I will go and hide under the table for now.
The writer is a London-based analyst hailing from Balochistan. He can be reached at email@example.com
By —Jan Assakzai