21 February 2015

Debt Strangles Pakistan’s Naval Ambitions

February 19, 2015

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 stilljumped 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.

Pakistan’s murky financial picture leaves the future of naval modernization in serious doubt. Plans to acquire four additional F-22P Zulfiquar frigates from China will likely be derailed by funding issues and Congress halted delivery of three American Oliver Hazard Perry frigates last year with Islamabad struggling to meet its counterterrorism and non-proliferation objectives. The Pakistani Navy hoped the F-22P and Oliver Perry frigates would replace its aging British ships. Meaningful fleet expansion would require hikes in defense spending, a non-starter with the IMF.

But even if the navy can’t acquire additional ships, Sharif can still pursue greater maneuverability in the Persian Gulf, an important maritime goal. “They want to use the Gulf as a cushion for themselves.” Khan argues. With just a bit of control there, “they can choke off India.” New Delhi, the world’s fourth biggest consumer of crude oil, imports much of its supply from the Gulf.

That objective is increasingly important as India pursues an aggressive naval buildup, with hopes of expanding to a 160-ship fleet and three carrier groups, which would dwarf Pakistan’s Navy. “They don’t have the capability to hold off India in a full-scale war,” Khan maintains.

Leverage isn’t just about deterring India, though. The Pakistanis hope a strengthened navy will allow them to arbitrate regional disputes, like those in the Persian Gulf. “The Pakistanis feel that with a presence in the Gulf, if there’s a chance of a war between Iran and the Gulf countries, they can stop it.” Khan says. A majority-Sunni country, Pakistan’s prominent Shia minority gives diplomats unique credibility in dealing with both Iran and its neighbors. Pakistan held joint naval exercises with Tehran in the Persian Gulf last year, demonstrating the strength of their friendship to the world.

Pakistan’s hopes for a larger regional role are not new. “After the first Gulf war, the Pakistanis lost their cushion in the Gulf.” Khan argues. But Pakistan has maintained strong relationships in the Gulf: Emirati and Qatari Navy recruits still train in Pakistan, and Islamabad is deeply involved in naval diplomacy with both. Saudi Arabian officials celebrated their “historic” relationship with Pakistan during a visit early last year.

Ultimately, Sharif is betting that he can increase Pakistan’s leverage with India by modernizing his fleet. To do so, he will have to sort out a corrosive debt situation in Islamabad. Will he be successful? It’s anyone’s guess.

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