Pakistan: CATCH-22 OF DEFENCE SPENDING

By Air Commodore(R) Khalid Iqbal 

A typical national purpose has two vital components, national development and national survival. Masses like to be prosperous and secure. These two facets support each other as much as they compete with each other. National development without security attracts aggressors and national security at the cost of development degrades social security and erodes public welfare.  Balance between the two is essential but is difficult to achieve. Meltdown of Soviet Union and occupation of Kuwait by Iraq are two contemporary examples of imbalance between national development and national security.  

There are many ways of looking at a defence spending; each approach leads to differing perceptions. First let’s take a look at Pakistan’s budget from the ‘broader picture perspective’. 

Outlay of our national budget (Rs 2767b) is 14.2% higher than the previous year, net revenue receipts ( Rs 1529) are expected to be up by 11%, and size of PSDP (Rs 730b) shows an increase of 58% from the revised PSDP figures of 2011. Foreign remittances are likely to reach $12 billion mark by the close of this year, foreign currency reserves have reached $17.3 billion and exports grew by 28 percent during the current fiscal year. Foreign assistance (Rs 414b) is expected to be 42.7 percent or Rs 124 b higher than the current fiscal year. On expenditure side, debt servicing (Rs 1034b) shall consume 37.4% of the total budget expenditure. Within this framework, defence budget (Rs 495b) is 17.9% of total expenditure. Defence budget is up by 11.4% from the closing year. Going by this frame work it appears that that by and large our traditional pattern of broader budgetary contour has been preserved vis-à-vis defence spending.

Defence spending in the outgoing fiscal year was Rs 586 billion, about 23 per cent of 2010-11 budget; by adding pension-related expenses of Rs 71.9 billion in the outgoing fiscal year the total spending would come to Rs 658 billion or 25.6 per cent of the total budget. Likewise, if we add to next year’s budget additional Rs 150 billion that the government has allocated, almost half of which was billed under the Armed Forces Development Programme and Rs 73.2 billion paid from the civilian account as military pensions, the net allocation stands at Rs 718 billion, that accounts for around 26 per cent of the total budget. However, these practices of funding defence spending through other heads are a common practice. Many countries including Indian and China also plan their funding of defence spending in a similar format.

Budget’s main distribution is: 41 percent (Rs 206.4 billion) for human resource related expenses, 26 percent (Rs 128.2 billion) for operating expenses, 23 percent (Rs 117.5 billion) for physical assets, and 8.6% (Rs. 42.6 billion) for civil works. The share of three services is rationalized based on the strength of the each service and the requirement for the weapons and equipment. Remainder amount is further divided into various sub-heads.  Expenditures on ‘Defence Production Division’ in the new financial year have been  estimated to the tune of Rs 1229.725 million.

Archives indicate that in 1996-97 defence spending consumed 26.25 of the budget.  During 2001-2, defence allocation was 20.87%. Over the last few years, there has been a decline in the defence budget in practical terms. There was no raise in defence allocations in 2009-10. During year 2010-11, in term of GDP share, the defence allocation was 2.6 percent; whereas, despite an increase of 12 percent, the GDP share of defence allocation for the next year (2011-12) would go down to 2.4 per cent.

There has been a steady decline in defence services’ slice in the GDP cake over the years. This shortfall can be attributed to inflation, which has been around 12-14 percent; moreover, dollar-rupee parity, rising cost of equipment, fuel and food are some of the factors which have been quietly eroding the purchasing power of our military.

Now let’s take a look at our defence spending with respect to threat perception, our main threat emanates form India, this year she has raised the defence allocation by 11.59%, last year it was jacked up by 30%. India considers Chine as her principal enemy. This year China has upped its budget by 12.7%. Here again Pakistan’s increase in defence budget appears compatible within the context of triangular pattern of threat perception. However, Indian and Chinese economies with a growth rate of 9% support a competitive escalation in military spending whereas Pakistan with an almost stagnated economy (GDP growth of around 2.4%) is trapped in an unenviable situation.

Our federal revenue is insufficient to even pay for its current expenditure. Federal government plans to spend (Rs 2,504 b) Rs 975 billion more than its revenue. It expects provinces to generate a combined surplus of Rs 125 billion. As a result, the overall fiscal deficit is envisaged to come down to Rs 850 billion, that is the IMF prescribed deficit of four per cent of GDP.

Unless commercial leadership is removed once for all, chances of Pakistan’s economic bounce back in short to medium timeframe are remote, likewise there are no prospects of taking an early break form the quicksand of strangulating triangular threat assessment paradigm. Indian economy is 12 times of our economic outlay and is growing around 4 times faster. Our inflation is 15% while India has been able to contain it to 7%. Our tax to GDP ratio is 8% while India’s ratio is 20%. Our GDP is up by paltry 2.4% while we are constrained to up our defence spending by 12%. China’s defence spending to GDP ratio is 1.4%, India spends 1.83% whereas and Pakistan’s ratio is 2.4%. This certainly is not a sustainable preposition for Pakistan.

Another perspective of viewing the budget is from volumetric perspective that is in dollar form, because that represents the raw purchase power. Chinese Budget for the 2011-12 year is US$ 91.7 b, Indian spending is US$ 36.03 b and Pakistan plans an outlay of US$ 5.764 b.   Pakistan’s disparity vis-à-vis the Indian armed forces in 2001-2 was 1: 3.5; it has now accentuated to over 1:7.  According to Stockholm International Peace Research Institute (SIPRI), actual military defence expenditures of India are $41.3 billion.

The Economic Survey 2010-11 estimates that the war on terror has cost Pakistan $17.8 billion in the current fiscal year, which is nearly 70 percent of the country’s total exports. According to candid estimates, Pakistan has suffered a loss of about $70 billion between 2001 and 2010. Assistance from the United States is rather insufficient when compared to the losses being suffered by the country. Pakistan gets $600-800 million a year under the Coalition Support Fund. During the recent years, flow of CSF was often interrupted on one flimsy pretext or the other. Over the preceding case, Pakistan received US $ 8.6 b against an expected amount of US$ 13 b under CSF. Of this only US$ 2.6 was allocated to defence services, rest was utilized by the government for budgetary support.

At policy level Pakistan needs to embrace intellectual agility and functional culture to link our national security to national economy. Incidents like operation ‘Geronimo’ and the terrorist attack on PNS Mehran have eroded the public confidence about the capacity and capability of our armed forces. Nevertheless, there is a national consensus about funding the essential security requirements. For their part armed forces need to identify their flaws and take corrective steps; apart from other steps financial belt tightening is certainly overdue.

By radiationcell313 with No comments