Pakistan’s Army as a Nemesis to its Economic Growth

Pakistani Army soldiers

When the army acts as the political and economic force and becomes a prominent stakeholder in political-economic decision-making processes, it is a recipe for hampered economic growth and development of a nation. This is indeed the case of Pakistan’s economy. It is well established that if a civilian government falls out of the military’s favor, it is bound to topple, as we saw in the case of Imran Khan’s case as well as the turmoil in the recent February 2024 elections.

The amount of influence the military holds on Pakistan’s day-to-day economy and society is, well-known and highly concerning. Not only has the military been successful in controlling the state and its institutions, and public facilities like transportation, communication, education, etc., but it also exercises undue control over its private sector, much to the chagrin of the proponents of the market economy.
The military is excessively involved in its industry, commerce, and business, giving it a major say in Pakistan’s policy space.

The military, through its welfare and charity system, along with large-scale land ownership, has developed itself into a self-financed system with limited dependence on the so-called “elected” civilian government. This has led to the coining of the term “milbus”, that is, military capital used for the personal benefit of the military fraternity, which led to the establishment of the military as a dominant player in Pakistan’s public and private sectors. Practically, the entire economy, ranging from petrol stations to hawala banks and firms involved in exports and imports, is controlled by the army.

The milbus economy involves funds that are not a part of the defense budget but are rather activities in direct or indirect control of military officers or their associates. The excessive involvement of the military in the politics of Pakistan has entitled it to control the economy and its resources as well as dismantling the democratic and free market institutions. Moreover, the Milbus activities are not subjected to any recording and accountability and, hence, never revealed to the public. Despite a large fraction of the official budget accruing to the military and the operation of Milbus, the military has shown a nonchalant attitude towards Islamabad’s recent economic crisis. Due to peaking inflation and a shortage of foreign exchange, Pakistan had to reach out to the IMF for help last year. However, experts believe that if Pakistan’s military cuts back only 10 percent of its costs, it will free up funds worth $1.2 billion for the economy, as compared to the $1.1 billion of aid taken from the IMF.

Though some economists believe that military expenditure can also boost the economy’s growth and have a significant multiplier effect, however, that is mostly true for developed economies. Empirical evidence suggests that in economies struggling for development and stability, like Pakistan, an increase in military expenditure has a rather “negative effect” on the growth rate.

The army doesn’t have any vested interest in stabilizing the economy as well. This is because economic stability may come at the cost of resources that accrue to the army. Army fears that modernization in its economy and shifting of funds would not only defense spending but also its ability to build a modern defense base . The question arises: In an economy that is grappling with problems of severe economic crisis, food inflation, unemployment, and political unrest, what role does enhanced defense expenditure play?

Given the worsening of the health of the nation’s economy, the army decided to step up, and Army Chief General Asim Munir held meetings with prominent businesses last September. However, most of it was for optics. Economists, with barely any hopes resting with the army, believed that nothing would change as the military had a pedestrian understanding of the economy . All the tall claims of bringing FDI to Pakistan by the army are rather a hullabaloo, given how much confidence international players have in the current conditions of the economy. The excessive involvement has led to the lowering of its credit ratings internationally. As per S&P, Pakistan is the nation with one of the lowest credit ratings, CCC+.

Experts opine that the military should stop its involvement in commercial enterprises, and a share of the profit of the military should go to the economy if they want to benefit the country and not just fill army coffers. Moreover, military-backed enterprises should be taxed as non-military-backed enterprises. The army is causing long-term damage to the economy’s health. It is a resource that it refuses to share with the economy even in difficult times.

First of all, it captures a large share of the budget. Second, it operates its own private military business economy. These activities, together with its excessive political control, crowd out any funds free for private sector investments. As a result, private enterprises are suffering, limiting their growth and furthering the underdevelopment of the economy. Unless army changes agrees to renege on it control and share its resources, the future of development in Pakistan is uncertain.

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