Does the money earned by military hardware export enter the mainstream economy in Pakistan?

Question

• Pakistani JF-17s replace Iraq’s F-16 fleet

• iraq-might-buy-pakistans-jf-17-fighter-or-frances-rafale-or-both

... it’s rumored that Iraq has acquired 12 JF-17 Thunder Block III fighters, with the price tag speculated to be around $664 million.

• iraq-to-reportedly-acquire-chinese-pakistani-jf-17-thunder-fighters

This report says that the long-term value of the contract would be $1.1 billion (i.e., taking into account the maintenance and training).

Also, I see that, Seven Pakistani companies have been participating in IDEF2023 in Turkey.

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My question is,

• Does the money earned by military hardware export enter the mainstream economy in Pakistan?

Or, does it stay within the military?

Answer 1

Only by taxing the selling company's owner... the Pakistan Air Force, on the profits.

The announcement

Pakistan Aeronautical Complex reached an agreement with the Republic of Iraq for the sale of 12 PAC JF-17 Thunder Block III 4.5 generation multirole fighter aircraft.

Pakistan Aeronautical Complex

Founded in 1971 by the Pakistan Air Force (PAF), the PAC designs, develops, and builds aircraft and avionics systems for the Pakistani military— it also provides its services for civilian aircraft.[4] In addition, the PAC performs local maintenance and works on the aircraft MLU systems of foreign-built military and civilian aircraft. It is solely owned by the Pakistan Air Force and its corporate interests and its corporate appointments are directly made by the Chief of Air Staff from the Air HQ.[4]

As others have mentioned at times, the Pakistani Armed Forces tend to have their fingers in a lot of business pies. Large scale business ownership by the military would be an unusual arrangement by OECD standards and many would consider it inappropriate (manage businesses or know how to fight wars - pick one).

Now, keep in mind, the ethics also depends on what we are talking about.

• If the PAC is selling, in conjunction with the Chinese, new aircraft the Pakistani Air Force (PAF) never owned (i.e. never bought for the PAF by the Pakistani taxpayer), that is one thing - normal profit, by a company that happens to be owned by the armed forces. This seems the case with JF-17, as they are brand new.

• If PAF is selling planes (like those F16s which the PAF definitely operated) that were purchased by Pakistan taxpayers and operated by the PAF, and then the PAF pockets all profit, without offsetting any of that against its budget... well, that shows the wise investments the Pakistan Armed Forces make in controlling its civilian governments.

Answer 2

Presumably, engineers who design these planes and workers who build them live in Pakistan, earn wages and pay taxes. They also buy parts from suppliers and maintain plots of local land. That's how the money will enter economy of the country.

Answer 3

Pakistan's JF-17s are produced by "A joint venture between Pakistan and China" according to the first link in the question.

The Pakistani partner is a corporation which is a Pakistani defense contractor and not technically the Pakistani military or the Pakistani government of which the Pakistani military is a part (although it is owned by the Pakistani Air Force). According to the linked source:

The JF-17 is made by Pakistan Aeronautical Complex (PAC) Kamra, where about 58 per cent of parts are manufactured, while the rest 42 per cent is manufactured from China.

The money spent building JF-17s in Pakistan goes to local workers and parts suppliers. But, some money for JF-17 exports from Pakistan goes to Chinese military contractor companies (probably government owned) pursuant to the joint venture agreement. This probably represents a combination of royalties for Chinese military know how involved in creating the design and some amount for parts made in China that are to hard to manufacture in Pakistan (e.g. advanced avionics and possibly some key engine parts).