Pakistan Defence and Security Report 2015
BMI View: Pakistan's local defence industry remains underdeveloped due to a lack of investment intoR&D, and as such, domestic companies rely heavily on assistance from foreign firms to manufacturesophisticated military equipment. The majority of the armed forces' more high-tech requirements aretherefore predominantly met through imports. However, collaborations between foreign (mainly Chinese)firms and Pakistani entities have resulted in the development of units with significant export potential, suchas the JF-17 fighter jet. Meanwhile Pakistan's defence expenditure remains elevated, due to the threat ofmajor conflict with India and the large number of terrorism organisations operating across the country -ensuring strong demand for new products over our forecast period to 2019.
We expect the defence budget in Pakistan to grow over 2015, as a military scale-up of offensives againstmilitant groups in tribal areas - coupled with continued border skirmishes in Kashmir between India andPakistan - make elevated levels of expenditure necessary. Additionally, any significant reduction in defencespend by Islamabad would likely provoke a reaction from the country's powerful army chiefs - raising thethreat of a military coup. At present, Prime Minister Nawaz Sharif appears unwilling to risk the stability ofhis already fragile rule, and as such we forecast a strong 8% y-o-y defence budget increase to reach a totalof USD8.2bn over 2015. BMI has upgraded the real GDP growth forecast for fiscal year 2014/15 (July-June) to 4.2% from 4.0% previously, and 4.1% in FY2013/14 owing to the support provided by lower oilprices, together with continued progress on economic reforms. This makes any significant cuts in thedefence budget unlikely over the short term.
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