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Pakistans decision this week to begin negotiations with China to buy six submarines coincided with confirmation of figures showing that foreign direct investment is down 21 per cent to just $1bn in the first eight months of the financial year ending in June.
Clearly, worsening economic realities have been ignored by ruling politicians and powerful generals who seem convinced that the threat to Pakistans shipping lanes is greater than the multiple economic, social and political challenges faced on land.
Pakistans defence planners have sought to keep pace with military expansion in neighbouring India. Yet, with Pakistans economic performance falling well behind Indias, the effort may be futile in the long run.
Just last month, Indias annual budget was broadly welcomed by the business community in a sign of the countrys ability to continue attracting investors from within and abroad.
But in Pakistan, finance ministry officials have worked frantically to persuade the International Monetary Fund to resume lending after only U$7.5bn was disbursed from a U$11bn loan program.
For the Fund, the prospect of Pakistans annual budget deficit in the year to June soaring to as much as 8 per cent of GDP from a target of 4.7 per cent, without quick remedial measures, makes Pakistan, for now, an unacceptable client.
Some measures to raise revenue have been agreed between the IMF and the finance ministry this month, though it is impossible to predict exactly how soon they will begin to stop the haemorrhage.
In their defence, Pakistani officials have attributed a continuing economic downturn to losses run up by factors beyond their control, notably the effect of a security crisis unleashed by Taliban activity and last years devastating floods.
But Pakistans unimpressive economic record is deep-rooted. A glaring gap is the failure to revamp the tax collection system. Just over one per cent of the population pays an economic tax while repeated efforts to slap a robust VAT style sales tax have failed.
Besides, the countrys leaders hardly offer inspiration to others. Months after president Asif Ali Zardari spoke of plans to slap a new flood tax on affluent Pakistanis to raise money to finance post-flood rebuilding, the government still has to enforce that measure.
On other fronts too, there is hardly much hope. While globally high oil prices following the conflict in Libya forced many countries to raise domestic petroleum prices, Pakistans ruling party-the Pakistan Peoples Party (PPP) failed in passing on the full scale of higher oil prices to consumers.
The political cost in the shape of a break with a smaller political party which protested against price increases appeared to be unacceptable to president Zardari. Part of the budget deficit will come from the cost of the domestic fuel subsidies.
If indeed a submarine deal with China is successfully concluded, Pakistans generals will probably pat themselves on the back for part filling the so-called strategic gap (with India).
Islamabads long-established defence ties with Beijing will be further reinforced following earlier projects undertaken by the two in jointly producing fighter planes, warships and tanks. But if Pakistans economy continues to sink, the countrys armed forces could well be faced with terrestrial challenges with the Taliban and others in which submarines may be little help. Meanwhile, India gets richer by the day.
Cash-strapped Pakistan buys submarines | beyondbrics | News and views on emerging markets from the Financial Times
Clearly, worsening economic realities have been ignored by ruling politicians and powerful generals who seem convinced that the threat to Pakistans shipping lanes is greater than the multiple economic, social and political challenges faced on land.
Pakistans defence planners have sought to keep pace with military expansion in neighbouring India. Yet, with Pakistans economic performance falling well behind Indias, the effort may be futile in the long run.
Just last month, Indias annual budget was broadly welcomed by the business community in a sign of the countrys ability to continue attracting investors from within and abroad.
But in Pakistan, finance ministry officials have worked frantically to persuade the International Monetary Fund to resume lending after only U$7.5bn was disbursed from a U$11bn loan program.
For the Fund, the prospect of Pakistans annual budget deficit in the year to June soaring to as much as 8 per cent of GDP from a target of 4.7 per cent, without quick remedial measures, makes Pakistan, for now, an unacceptable client.
Some measures to raise revenue have been agreed between the IMF and the finance ministry this month, though it is impossible to predict exactly how soon they will begin to stop the haemorrhage.
In their defence, Pakistani officials have attributed a continuing economic downturn to losses run up by factors beyond their control, notably the effect of a security crisis unleashed by Taliban activity and last years devastating floods.
But Pakistans unimpressive economic record is deep-rooted. A glaring gap is the failure to revamp the tax collection system. Just over one per cent of the population pays an economic tax while repeated efforts to slap a robust VAT style sales tax have failed.
Besides, the countrys leaders hardly offer inspiration to others. Months after president Asif Ali Zardari spoke of plans to slap a new flood tax on affluent Pakistanis to raise money to finance post-flood rebuilding, the government still has to enforce that measure.
On other fronts too, there is hardly much hope. While globally high oil prices following the conflict in Libya forced many countries to raise domestic petroleum prices, Pakistans ruling party-the Pakistan Peoples Party (PPP) failed in passing on the full scale of higher oil prices to consumers.
The political cost in the shape of a break with a smaller political party which protested against price increases appeared to be unacceptable to president Zardari. Part of the budget deficit will come from the cost of the domestic fuel subsidies.
If indeed a submarine deal with China is successfully concluded, Pakistans generals will probably pat themselves on the back for part filling the so-called strategic gap (with India).
Islamabads long-established defence ties with Beijing will be further reinforced following earlier projects undertaken by the two in jointly producing fighter planes, warships and tanks. But if Pakistans economy continues to sink, the countrys armed forces could well be faced with terrestrial challenges with the Taliban and others in which submarines may be little help. Meanwhile, India gets richer by the day.
Cash-strapped Pakistan buys submarines | beyondbrics | News and views on emerging markets from the Financial Times
