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    South Asia
     Jun 9, 2011

Pakistan defense budget surges 12%
By Syed Fazl-e-Haider

KARACHI - A 12% rise in Pakistan's defense budget for the fiscal year starting on July 1 outpaces the 8.1% increase in the national budget announced last week, yet still hugely understates actual military spending in the heavily indebted country. The real amount is possibly nearly double the budgeted figure.

A separate allocation for security-related expenses and the amount given over to pensions of military personnel have not been included in the 495 billion rupees (US$5.76 billion) in budgeted defense expenditures. If added, these bring total military and security costs to 900 billion rupees.

Debt servicing alone will consume 38% of the next fiscal year's budget, with 1,034 billion rupees earmarked for debt servicing and repayment of foreign loans, compared with an original 699 billion

rupees, later revised to 726 billion rupees, in the 2010-11 budget.

A scrutiny of defense spending has been demanded by many in Pakistan, particularly following the May 2 Abbottabad assault in which American special forces killed Osama bin Laden, the recent terrorist attack on Mehran naval base in Karachi, and the possible involvement of intelligence operatives in the death of local Asia Times Online bureau chief Syed Saleem Shahzad.

Defense spending has been on rise at the expense of development spending, leading to demands that the national security paradigm shifts to social concerns, with the bulk of the nation's resources spent on education, health and other welfare projects.

Finance Minister Abdul Hafeez Shaikh on June 3 announced a 2,767 billion rupee budget for the fiscal year ending June 31, 2012. At a post-budget press conference the next day, he called for checks and oversight on defense expenditure, but also said that the government would not compromise on the defense budget as it was necessary for the security of the country.

Shaikh announced a 15% increase in the salaries of federal government employees, including the armed forces. At the same time, a tax waiver on sales of defense stores was ended, making defense trucks and other equipment and parts subject to a 16% sales tax. Twenty similar exemptions in other sectors of the economy were also withdrawn.

Of the amount budgeted for defense, which will consume 18% of the total budget, 206.4 billion rupees is for employee-related expenses, 128.2 billion rupees for operating expenses, and 117.5 billion rupees for physical assets.

The defense budget masks actual defense expenditures in several ways. Over and above the budget figure, 340 billion rupees will be made available through grants for security expenditure, up 19.3% from this year's 285 billion rupees. Total security-related expenditures will increase 15% to 835 billion rupees against this year's 727 billion rupees.

"The government has allocated an additional 150 billion rupees for the armed forces, almost half of which was billed under the Armed Forces Development Programme," according to The Express Tribune. The total defense and security allocation comes to around 645 billion rupees, which is almost 23.8% of the total budget. In addition, 73.2 billion will be paid from civilian accounts on army pensions - a practice initiated by then president Pervez Musharraf in 2000. By adding the stated budget, contingent liabilities and army pensions, allocations total 718 billion rupees, equivalent to almost 26% of the total budget.

A year ago in its budget for the 12 months to this June, the government increased its defense spending 17% from the 342 billion rupees for the year to June 30, 2010. Total defense and security-related spending in the fiscal year was 586 billion rupees, or almost 23% of the total budget. Adding pension-related expenses of 71.9 billion rupees for the period, total spending came in at 658 billion rupees, or 25.6% of the total budget.

The military establishment reportedly sought an 18% increase in defense expenditure for the coming year, to 524 billion rupees.

Dawn commented:
Post May 2, we live in a different Pakistan. Osama bin Laden's presence here, the American operation against him, the attack on PNS Mehran, the possible involvement of intelligence operatives in the death of journalist Saleem Shahzad - all have taken place within the space of a month. Pakistanis are reeling from these shocks and increasingly questioning the efficacy of the military. ... the announcement of Rs495bn in defense expenditure for 2011-12, a 12 per cent increase, will raise concerns. A Rs295bn grant, most of which will reportedly go to the military, has also been made for security needs arising from the new threats the country faces. Combined, these two categories represent a third of next year's budget, yet do not include some other defense organizations such as the Frontier Corps and the ISI.
Dawn's editorial added:
The defense budget far outpaces health and education expenditure, for example, in a country that offers little by way of social services. It is obvious that Pakistan is at a crossroads and that funds are required to defend it at the expense of other needs. But its citizens also need to know that those funds are actually being spent on their protection.
The country cut its development spending by more than half in the current fiscal year in order to meet its fiscal deficit target. Critics say that the government should cut its defense spending instead of squeezing development funds.

"We cannot dole out money any more without assessing the actual needs and without setting benchmarks," The Express Tribune reported defense analyst Ayesha Siddiqa as saying. "It is high time to issue a white paper on defense to assess what we have so far got and what we lost and what are the actual security needs."

Nawaz Sharif, the leader of Pakistan Muslim League-Nawaz (PML-N), the country's main opposition party, recently demanded that the budget of the army and intelligence agencies should be presented in parliament.

"Intelligence agencies should stop playing games, including making new political alliances and dividing political parties. They should stop running a parallel government and dictating [to] elected representatives," The News reported Nawaz Sharif as saying.

The budget set a total tax collection target of 1.952 trillion rupees, and a budget deficit target of 4% of gross domestic product, or 851 billion rupees for the coming fiscal year. The deficit is to be met through local and external financing.

The budget deficit is likely to reach 974 billion rupees in 2011-12 if grants from foreign donors are not received. Delivery of these is dependent on a "letter of comfort" from the International Monetary Fund. That hinges on Pakistan reaching agreement with the Washington-based lender on terms for the release of remaining funds linked to a 2008 IMF bailout agreement. Islamabad also wants new loans from the IMF to meet repayment obligations tied to the earlier loan.

Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.

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