Debt Strangles Pakistan’s Naval Ambitions

Pakistan dreams of being a naval power. Its shoddy finances are impeding on that goal.

In October, Pakistan’s prime minister Nawaz Sharif walked with a throng of cadets through the sprawling campus of the Navy War College in Lahore to inaugurate a new facility. “I feel proud to have learnt that Pakistan Navy is constructing indigenous large warships,” Sharif told a group of students. “The emphasis should remain on indigenous construction and joint ventures through transfer of technology.”

With Pakistan’s lone shipyard in Karachi now fully operational, the Pakistan Navy is getting its sea legs in producing defense equipment, having built two tugboats in early 2013. Sharif has lofty hopes that the defense sector of Pakistan will soon churn out warships big and small, from frigates to corvettes. For years, Pakistan has talked of a major naval modernization campaign. Can Islamabad actually make it happen?

It’s not likely, at least for now. Financial trouble has sidetracked modernization for over a decade. Former prime minister Yousuf Raza Gilani’s $24 billion strategy to revamp the entire military, known as the Armed Forces Development 2025 plan, was shelved when Islamabad agreed to a strict bailout from the International Monetary Fund in 2008. Strapped for cash, the navy was forced to abandon its submarine acquisition, corvette and frigate programs. “By 2015, they were supposed to have fifteen frigate-class vessels, and six or seven submarines,” says Haris Khan, a Senior Analyst at PakDef Military Consortium, a Tampa-based think tank. When Admiral Muhammad Zakaullah assumed command of the navy, around the time of Sharif’s visit to Lahore, Pakistan had just received six new Yuan-class submarines from China, but maintained just ten frigates.

Pakistan’s defense ministry, where misappropriation of manpower and resources run rampant, bears part of the blame. Even though Pakistan boasts the seventh-largest military in the world, the navy subsisted on just $725 million last year, less than a third the cost of a single American destroyer. “When something comes up, it is left to the chief of the armed forces to do the business of procurement,” Khan says. Sharif not only holds the portfolio of prime minister, but is deeply involved in crafting the agenda of the ministry of defense. “If you’re holding that many portfolios, nothing happens.”

Islamabad doesn’t have the money to splurge on brand new ships every year as do the Americans and the Chinese, but the size of the surface fleet has still jumped from six to ten frigates since 2001. The last of four F-22P Zulfiquar-class frigates arrived from China in 2013. “The navy is much more capable of projecting their capabilities.” Khan argues. Six Amazon-class frigates purchased from the British Royal Navy in 1994 have been outfitted with new weapons technology: two vessels have received Chinese LY-60 surface-to-air missiles (SAM) and four others have gotten American Harpoon surface-to-surface missiles (SSM), giving Pakistan greater ability to deal with threats from the air and sea. The defense budget increased to $7 billion dollars last year, up eleven percent from 2013.

Still, Islamabad’s economic challenges have gotten no easier. Growth has averaged just 3.8 percent over the past four years, and Pakistan continues to struggle with its debt. The crunch forced Sharif to borrow $2 billion more from the IMF in 2013, at exorbitant interest rates.

Though Sharif has managed to relieve some of the pressure on Pakistan’s energy sector, a deteriorating financial situation forced the government to agree to a hefty $6.6 billion IMF bailout package in 2013. That deal was attached to debt reduction targets. Pakistan has met those goals so far, but that’s largely due to one-off measures such as cash transfers from state-owned enterprises, foreign grants, and cuts in development spending. Reducing subsidies could be another boon to those efforts.