Pakistan military agrees to pay cut before ‘austerity budget’

11 Jun 19

Pakistan’s military agreed to take a budget cut ahead of the government revealing its spending for the year today as the country faces a “critical financial situation”. 

Islamabad plans to tighten spending for the next fiscal year in its budget today after narrowly avoiding an economic crisis, which saw it secure a $6bn loan from the IMF last month.

The deal has been agreed in principle but to access the funds Pakistan is expected to rein in its swelling fiscal and current account deficits, which have been compounded by falling foreign exchange reserves.

Pakistan’s defence spending, has increased every year since 2009, according to a Stockholm International Peace Research Institute (Sipri) report, published in April.

It is estimated at around a fifth of the country’s total government spending of $42bn for the July 2018-June 2019 financial year.

Sipri found Pakistan’s defence budget increased 73% from 2009 to 2018, one of the largest rises among high-spending countries. 

The spokesperson for the Pakistan Armed Forces major general Asif Ghafoor tweeted the cuts “will not be at the cost of [defence] & security”. He added the impact would be managed through “internal measures”.

Khan expressed appreciation for the military’s “unprecedented voluntary initiative of stringent cuts” in a tweet sent last Tuesday. He added the money saved would be spent on the development of “merged tribal areas and Balochistan”.

A journalist reacted on Twitter saying:

The IMF said Pakistan’s spending plan should cut the primary budget deficit by the equivalent of almost $5bn, though its recommended measures did not refer to defence spending. It is also expected the government will have to come up with new taxes to raise revenue.

The IMF bailout was repeatedly delayed under prime minister Khan before he reluctantly agreed it last month.

He had secured loans from Saudi Arabia, the UAE and China since coming to power in August but the country remained in poor economic shape.

Khan has now reshuffled his economic team, installing Reza Baqir, who previously held senior positions at the IMF, as central bank governor.

The Pakistan government indicated in February that the defence budget would be protected. The IMF has declined to comment. 

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