Excessive Defense Expenditures and Economic Stabilization: The Case of Pakistan

Abstract

Toward the end of 1988, Pakistan's deteriorating resource situation caused a financial crisis, many remnants of which still exist today. In 1988 the government's budget deficit reached 8.5 percent of Gross Domestic Product (GDP), inflation accelerated, the current account deficit doubled to 4.3 percent of Gross National Product (GNP), the external dept service ratio reached 28 percent of export earnings, and foreign exchange reserves fell in half, to $438 million, equal to less than 3 weeks of imports (World Bank, 1991).