Diameter is the distance
across the barrel - from one side of the muzzle end to the other side of the muzzle end straight across. Circumference would be the distance
around the barrel.
However, it appears your barrel's muzzle has not been turned down. It looks like it's the same thickness as the rest of the barrel. It's simply a typical Chinese Type 56 military-style barrel that's not had the muzzle threaded. But the front sight base is the type for a muzzle that
has been threaded - whether the previous owner swapped out the original front sight base or it came like that from the factory due to a shortage of parts to get the rifle assembled and shipped out.
To be honest, your rifle is going to look a bit odd with the plunger pin (also called a detent pin) in the front sight base but no muzzle nut/flash hider for it to secure - especially with military-style,
non-threaded Chinese Type 56 barrel. I'd suggest keeping it exactly the way it is and don't add the pin. If the hole bothers you, fill it (weld, JB weld, etc.) and finish to match the color/finish of the front sight base.
Thankfully, you have a military-style Chinese Type 56 barrel so you can dress your rifle up (in accordance with the US parts count) to look more closely to the actual Chinese military rifle. Unfortunately, a lot of MAK-90 owners do have their original, non-threaded (or threaded) muzzles tapered down much further in width than the rest of the barrel. And despite what some might say about the stamped receiver Type 56 rifle having both a threaded and non-threaded muzzle, even milled receiver Type 56 muzzles were made threaded and non-threaded, as well.
Here's some examples of some Type 56-1 rifles with non-threaded muzzles and no holes in the front sight base, although the full-buttstock version can be found with threaded and non-threaded muzzles: