Jul 21, 2011

The Defence Budget

            The penurious state of Pakistan’s economy did not prevent the government from allotting additional resources for defence with an overall tranche of USD 5.7 billion plus. Finance Minister while justifying increase in the defence budget said, “We live in a difficult neighbourhood. We are faced with threats to our security. We remain engaged in a struggle for the safety of our citizens. We are the victims of war on terrorism.” These multifarious security threats led to an increase in overall allotments to defence over a period which have ranged from an annual increase of 12 percent for 2011-12 (July to June) to 17 percent in the previous year. When supplemented by assistance in monetary and military equipment by United States through funds as the Coalition Support and outright grants by the Chinese, Pakistan’s overall security budget could well be double of the allotted defence budget topping US D 11 billion for 2011-12.  Factors such as lack of transparency in budgeting, presented before the National Assembly for the first time in 2008-09 after 1965 and many layers in funding has led to obfuscation of actual security expenditure of the country. An overview of the Budget for the past four years is as per Table below.

Against the consistent year on year increase, Pakistan enhanced the defence budget by 12 percent to Rs 495 billion, for the financial year 2011-12. This also includes 15% increase in salaries of the employees. This increase was more than the budgetary allocation of Rs 443 billion for the outgoing fiscal year 2010-11 but was lower than recommendations of the Ministry of Defence of Rs 525 billion. The Budget demand of the armed forces for the fiscal year 2011-2012 was in fact an all time high at Rs 586 billion. The Ministry of Finance is said to have turned down the request due to resource constraints and large allocations for flood relief.

The Armed Forces Development Plan (AFDP) received Rs 120 billion and Rs 125 billion was allotted for counter terrorism which will be offset by reimbursements from Coalition Support Fund by the United States. These allotments are over and above the regular defence budget. The actual defence budget thus works out to be Rs 740 Billion after the AFDP and the funds allotted for counter terrorism are taken into account.

For the financial year 2011-12, operating expenses of the three services have been estimated as Rs. 128.28 billion, compared to Rs. 111.24 billion during year 2010-11, whereas, employees expenses (including the 15% rise in the salaries) have been estimated as Rs. 206.5 billion. Similarly, the amount for civil works has been estimated as Rs. 42.6 billion, whereas, physical assets would remain as Rs. 117.6 billion for all three services.

Breakdown of service wise expenditure is likely to be 45 percent for the Army, 25 percent for the Air Force and 10 percent for the Navy and 20 percent for other elements such as the defence production given past trends. Thus the likely allotments will be Rs 220 billion (USD 2.60 billion) for the Army, Rs 125 billion (USD 1.44 billion) for the Air Force and Rs 50 billion (USD 599 Million) for the Navy.  A majority of the expenses are likely to be spend on pay and allowances but approximately 40 percent will go for capital acquisitions. These will be supplemented by provision of equipment at low cost by China as well as the United States.

In a candid confession, Defence Minister Chaudhry Ahmad Mukhtar accepted that his country would not be able to match India’s pace of arms acquisitions. “If we only try to match them (India) militarily and buy the sort of armament which they have, we will probably not be able to afford it,” Mukhtar said. He went on to add that India could fight for almost twice the period that Pakistan could possibly sustain. “The capacity of India and Pakistan to fight was for 20 to 22 days. Now India has inducted a lot of armaments, may be they can last for 45 days, we will not be able to do so,” Mukhtar said in an interview to BBC Urdu.  

The logic of the statement was based on the size of economies of both the countries. India’s economy was “six to seven times bigger than” Pakistan’s and trade volumes were “five to six times greater,” contended Mukhtar. He is known for some controversial if not downright embarrassing statements. Just after a visit to China he claimed that Pakistan had requested China to take over the Gwadar port and convert it into a military base. The Chinese were embarrassed and were thus quick to rebut this and stated that no discussion on Gwadar had taken place.