The Wrong Defence Budget

Defence Budget of Pakistan

Defence expenditure has almost doubled since last five years. In its latest budget, government has hiked defence spending up to Rs700.2 billion. Even this number does not tell the entire tale, however, as military pensions which have risen to over Rs100 billion are being paid from civilian budget, not defence. This high level of spending is often justified with claims about how Pakistan’s defence spending is the lowest in the region, despite serious national security concerns. But these justifications leave out a critical question which is whether it is even possible for Pakistan to spend its way to security.

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Tie Defence Budget To Results

Pakistan military systems

Defence Ministry has requested another increase in funds for military budget. This is not a surprise, actually, defence budget is raised every year and it will be raised again this year, too. This year, however, the government should make a change that would have a great impact in ensuring both the national security and the economic security of the nation: Tie the defence budget to results.

Pakistan faces real and immediate security threats. According to Air Vice Marshal Arshad Qudoos, “More funds are required for acquisition and mobilisation of new weapon systems”.  By tying the defence budget to results, we could be assured that those weapon systems were the ones actually needed to secure the country. Even more important, the military would have a strong incentive to focus on immediate threats instead of ideological or imagined ones.

The idea might sound surprising, but it shouldn’t. Pakistan is not China or America with trillions dollar budgets to divide among state agencies.  Chairman Senate Committee on Defence Senator Mushahid Hussain called for more accountability on Monday, saying that ‘People deserve to know how the defence budget is prepared and utilised’.

Knowing how the defence budget is prepared and utilised is important, but without the final element of accountability for actual results, that knowledge is meaningless. Tying the defence budget to actual results will cause national security and economic security to improve.

Putting our priorities in order

defense government-budgets-education-vs-military-spending

India is the world’s largest arms importer. It is also the third largest economy in the world. Pakistan has increased its purchased by 119 per cent, making it the third largest arms importer, just behind China. By contrast, though, Pakistan has the 27th largest economy in the world.

It’s not just arms imports that we spend a disproportionate amount of money on, it’s military spending in general. In one of it’s first acts after taking power, the PML-N government increased defence spending by 15 per cent, or Rs82 billion. This is about 3 percent of GDP, which means Pakistan has the 20th largest military expenditure as a percentage of GDP. By comparison, India spends less than 2.5 percent of GDP on military expenditures, ranking at number 32 of the world.

But the point here isn’t really whether or not an arms race with India is a winnable match (it isn’t). The point is that, while we are both spending billions on military expenditures, our nation is becoming less and less secure.

It has become close to accepted among much of the population that there is no purely military solution to terrorism. Whether or not one believes that military has any role to play (something even Imran Khan has come around to believe), the Americans experiment in Iraq taught us that you cannot kill terrorism away, you have to defeat terrorism through education and economic development.

In the latest budget, however, education is still not a priority, accounting for only 8 percent of spending – so small it doesn’t even show up on most charts. Health programmes also receive substantially less from the national treasure, accounting for only Rs9.9 billion. Meanwhile, polio, a disease wiped out in most of the rest of the world, is on the rise in Pakistan. And unemployment is set to increase this year and remain high for at least 5 years.

And don’t expect Nawaz’s secret billion dollar deals with Saudi Arabia to improve matters.

Pakistan’s new army chief, General Raheel Sharif, also met King Abdullah and top Saudi military commanders during a trip to the kingdom two weeks before the new account was set up.

It’s time to put our priorities in order. Instead of mortgaging the country to buy tanks and missiles, let’s spend billions on health and education. Instead of being 3rd largest arms importer, let’s become first largest importer of books. Every year we pour more and more of the national treasure into the military, and every year we become less and less secure. It’s time to try something different.

How not to negotiate with the IMF

Following is a post published in Express Tribune. Writer can be reached at pervez.tahir@tribune.com.pk

Negotiating a programme with the IMF has always been very difficult for Pakistan. More so, when we are seen to be desperately discussing an urgently needed bailout package. That is why, perhaps, the ongoing negotiations in Islamabad had seemed so difficult. To understand these difficulties, let us step back a little. During the election campaign, the venerable Sartaj Aziz had said: “Right now, you can’t reach an agreement with the IMF because the kind of conditions they would impose on you would not allow you to grow. But if our economic revival package starts working in two months, three months’ time, and it is clear that exports are picking up, our revenues are going up, then you need much less adjustment than indicated by the present situation.”

Dar ignored this sane piece of advice. First, he presented a budget with a deficit of 6.3 per cent. There is no way the IMF could stomach a fiscal deficit target beyond four to 4.5 per cent. It could have been fixed around five per cent anyway if: 1) the government had not increased the Public Sector Development Programme by 50 per cent to accommodate its politically motivated programmes; 2) it had not surrendered to the bureaucracy’s demand to increase salaries and pensions by 10 per cent; and 3) eliminated tax exemptions on its own. Instead of finalising its own energy plan first, the IMF was allowed to dictate the end of power subsidies within a tight time frame. It does not take kindly even to the lifeline tariff for the smaller consumers, the preference being for conditional cash transfers. Unfortunately, the State Bank of Pakistan also made a political statement by announcing a cut in the policy rate at a time when core inflation is still running above headline inflation. Worst of all, the finance minister announced on the floor of parliament that Pakistan needed the new IMF loan just to repay the earlier loan from the same institution. By implication, the intent was not reform but access to ready cash.

Like the hero in Punjabi films, he unleashed a series of economic barhaks from the word go. “Programme or no programme, we shall not impose further taxes.” It was pointless to make a request, if this was a non-negotiable position. The IMF knows enough about the capacity of the Federal Board of Revenue to reject the position that it can collect the desired revenue by toning up its administration. Millions of dollars poured in it by donors have made little impact on its governance. The SROs, lax audits and the slow pursuit of cases against tax delinquents are part of a culture that defies all reform.

Dar said he would negotiate, not beg. There was a needless invocation of national interest. In the same breath, he warned that the country could be reduced to a banana republic if the IMF did not help. The thought that he could negotiate without being flexible, bordered on the ridiculous. “I need six months to turn around the economy, but my problem is that the country has to return a substantial amount to the IMF soon,” he went on to claim. While there is no magic wand to turn the economy around in such a short span, a sounder budget and an austere balance of payments, together with some elements of the so-called plan “B”, would have provided the breathing space to stabilise the economy. It would have also prepared better ground for negotiating a deal with the IMF. However, the PML-N’s structural weakness — a bias against taxation and towards imports — has come in the way. It had promised an economic blast. What we have, thanks to Dar’s irrational exuberance, is an IMF drone. Is it any wonder that Secretariat Block Q was declared out of bounds to the media?

Published in The Express Tribune, July 5th, 2013.