Budgeting Pakistan

By Shahzad Chaudhry
June 03, 2016

The Rs4.42 trillion budget for 2016-17 is the equivalent of a little over $40 billion. This is the size of the total budget for Pakistan. India’s defence budget equals or exceeds this number. Pakistan’s defence budget in comparison is around $5 billion which translates to approximately 12 percent of our total budget, and 12 percent of India’s defence budget.

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Add the Rs90 billion – or another billion dollars – a year in pensions, and that makes a total defence outlay of $6 billion for the next year, though pensions are paid out of a combined kitty for both civilian and military retirees. The effective share for defence in the budget thus enhances to approximately 14 percent. Around 86 percent of the budget is meant for non-military purposes.

The US, whose drones recently took out Mullah Mansour in the settled areas in Balochistan, has made an outlay of around $630 billion for defence – the highest in the world, and equal to how much everyone else in the world together spends on defence. This amount happens to be just over 100 times that of Pakistan’s allocation for defence, including Pensions.

This is just to place into perspective the Guns Vs Butter debate that catches people’s fancy this time of the year, and the political economy of running defence forces in a region such as South Asia.

Around Rs1.7 trillion, approximately 38 percent of next year’s budget will be used for Public Sector Development Plans (PSDP). This is split almost equally between federal and provincial development projects. How much of it actually makes it to the delivery end is a source of some consternation at the national level in the context of the ongoing debate on corruption.

Keep in mind the money from the PSDP placed at the disposal of each legislator for their preferred projects in respective constituencies. Despite certain restrictions placed by the higher courts on such avenues of sponsored graft, the practice goes on under one garb or another. In the dying months of the previous PPP government scores of legislators had graciously placed their respective development funds at the disposal of a single contractor in Lakki Marwat for development. By that count the place should have matched Paris, but by all one hears it remains stuck in time despite all the funds that found their way there.

One Indian study places an average 15 percent only from such public allocations, for any kind of development works, which makes it to the delivery end in public interest while 85 percent gets pilfered along the supply and decision chain and never makes it to the people in whose name it is allocated.

There is another 30-odd percent of the annual budget that is used for paying off debt collected over time in the name of either extended financial facility through the IMF or that which is project related and comes by way of banks funded internationally or locally. If the government always spends more than it earns, it will always need to borrow to make up the deficit for running the government. If it wishes to do more beyond running the government it must take on additional borrowing.

With the economy listless, growth minimal at best or non-existent mostly, and tax collection laggard, there is absolutely no other way than to go to international financial institutions for funds in the name of projects or restructuring.

The moral intent of any borrowing should be to invest in ventures which will generate more money and profit, adding to growth as well as creating the space to retire the debt over time. Growth when realised – which has not been the case for decades – adds space to build either defence or social sectors. Unfortunately, in our experience this has rarely been the case. Instead political power has always translated into an economic opportunity restricted to a few who pilfer from such borrowed resource. Most of the borrowed money goes into filling personal coffers which can take the shape of offshore heists. This trend will continue, and continue to be the norm. In the meanwhile, debt will continue to pile up.

The political implication of such enervation forces the government to even build defence on borrowed money adding more debt. The eight F-16s intended to be bought from the US had to be shelved when space for them did not exist in national funds. That is why we are forced to mostly buy from China who will proffer a loan equal to the needs of the new acquisitions adding to the debt burden. This is why Pakistan’s sovereignty or foreign policy options are rarely independent enough.

Monies needed to fund the leaking and inefficient PSEs are the third largest allocation in Pakistan’s most inefficient and corrupt fiscal structure. The circular debt in the power sector gradually builds itself to levels similar to defence allocations. The monies needed to build defence or social sector development gets lost in this maze of corruption.

A word on the military’s commercial ventures either in the real-estate sector via DHAs et al, or the industrial undertakings by welfare-labelled respective service foundations. The common perceptions on these are mostly misplaced. The DHAs do ‘not’ use government money for their ventures. Reports of corruption and a few mega-scandals notwithstanding, the manipulation and extrapolation of personal benefit occurs within the non-public resource; non-public here meaning monies not from the government exchequer. It is right for these to be highlighted just as other cases of corruption are reported in the media, but the only exception is the need to clarify the source.

The military structures are public enterprises, run by public money via the defence budget and bound by strict financial regulation. However, corruption in the non-public realm remains corruption requiring appropriate treatment even when sourced to non-public organisations or individuals. Whether the defence forces should indulge in commercial enterprises at all is a separate issue worthy of an exhaustive debate – with its pros and cons.

Just as is in the case of butter, Pakistan lags in guns too.

The writer is a retired air-vicemarshal, former ambassador and a security and political analyst.

Email: shhzdchdhryyahoo.com

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