Pakistan’s Economic Challenges (Part 1): The Trade Deficit Plus

In Pakistan, it is evident that a slower defence modernization effort stems from stagnant funding, both in fiscal terms (i.e., the national budget) and monetary strength. The latter, which is the exchange-rate of one’s national currency, influences the affordability of big-ticket weapons.

This dynamic is a result of the fact that Pakistan imports its marquee weapons and the critical subsystems of its domestic products. These purchases occur in foreign currency, such as the Dollar, Pound, Euro, etc.

In Pakistan, a significant source of that monetary support had come from US military aid. In fact, Pakistan’s most extensive defence modernization phases occurred in the periods where it received the most US aid – i.e., the 1950s and 1960s, the 1980s, and the mid-to-late 2000s.

However, more recent geo-political realities have pushed Pakistan to now mostly rely on its own economy to drive defence modernization. Given the slower-than-average GDP growth-rate, a correspondingly slow pace of defence procurement should not be surprising.

But the Pakistani military will require new large-scale acquisition projects in some areas, notably in terms of next-generation combat aircraft (e.g., Project Azm). It would also benefit from significant projects in a number of other domains, but may temper expectations due to limited funding (e.g., armoured vehicles, small arms, etc).