SEEKING CHECK & BALANCE ON DEFENCE SPENDING

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)
June 13 - 19, 20
11

Federal Minster for Finance, Dr Hafeez Sheikh, has emphasized on the need of 'check and balance' on the utilization of defence budget during a post-budget 2011-12 press conference last week. He said the government should ensure effective mechanism to monitor defence spending in order to help the country plug fiscal deficit.

The federal government allocated Rs495 billion ($5.75 billion) for the fiscal year 2011-12. The allocation was approximately 12 per cent up over an allocation of Rs442 billion in the current fiscal year ending on June 30. The government proposed Rs2.8 trillion outlay for the budget FY12, showing an increase of 14 per cent increase over 2010-11.

Dr Sheikh spelled out the importance of defence expenditures amid the precarious security situation in the country. In his post-budget speech, he made it clear that there would not be any compromise on the defence in view of the security situation in the country. However, he also clarified that we should ensure 'best utilization of our resources for the betterment of the economy'.

He said in the current situation cut in defence allocations is equivalent to compromise on the national security, adding however accountability and transparency should be there to check unnecessary expenditures. The budgetary allocations to the military institution have been rising every year since the government of Pakistan allied with the US and allied forces to wage war on terror. Pakistan has been witnessing upsurge in terrorist acts for the last six years. Due to its shared border with war- and infighting-ravaged Afghanistan, Pakistan has also been affected by insurgency of militants. With rising invasions on militants, the incidences of terrorism are also on the rise.

In such a condition, cutback in military expenditures would catapult the country defenceless into the courtyards of anti-state elements. Pakistan's military spending is also affected by India that went into three wars and a warlike state with Pakistan. The neighbouring India with which Pakistan has historical tense relations is also puffing up its defence budget due to balance its military power with regard to China. India jacked up its defence budget to $36.5 billion in the ongoing fiscal year starting on April 2011 from $32.7 billion last year. Like on economic front, Pakistan can also not match India's strength on military front, which is ranked fourth largest army of the world. It boasts of active military personnel of 14 to 15 lakh as against Pakistan's five to six lakh. Critics say Pakistan's economy cannot afford such an enormous spending by military institution, especially in view of dilapidated education and health sectors.

Reports said the proposed defence budget of Pakistan exceeds to Rs700 billion if outlays on military welfare projects are also included. Veteran politician Air Marshal (R) Asghar Khan came hard on the defence budget, saying the defence budget does suit the cash-strapped economy like Pakistan that is unable to deliver basic amenities to majority of its people. He is amongst the public figures who want the government to revisit its foreign policy and improve its relation with India.

ECONOMIC SITUATION

The government has unveiled its plan to cut the fiscal deficit to four per cent of GDP in next fiscal year from 5.2 per cent in the ongoing fiscal year. The budget deficit is poised to reach at 5.7 per cent of the GDP if hefty circular debts in the energy sector of Rs120 billion are also added, an official at finance ministry told Reuters. Energy sector is eating into the public funds. Especially, the government requires Rs421 billion to foot the whooping bill of overall circular debts in the power sector. From oil marketing companies, gas suppliers down to power distribution companies and bulk electricity consumers, almost all public sector enterprises are trapped in the vicious circle of debts. Even bandage solution such as issuance of term finance certificates to mobilise money from the financial institutions, could not rein in the monster of circular debts.

The government proposed tax measures in the budget 2011-12 to increase tax revenue to over Rs1900 billion, which for many is an ambitious target given the fact that tax system is going to rely completely on income and sales tax. Pakistan's tax system is eccentric tilting strangely towards genuine taxpayers to generate resources while neglecting a plenty of untaxed taxable incomes. Tax evasion in Pakistan is oddly high with roughly 95 per cent of wealth holders contributing five per cent towards the national exchequers.

Dr. Sheikh also revealed the government's plan to tighten noose around 700,000 tax evaders in the next fiscal year. It is yet to be seen how this is going to happen. No doubt, Rs500 to 700 billion taxes are evaded annually, which has been brought under the government's notice many a times by the business community.

Pakistan is waiting for the release of tranche of IMF's 11 billion dollars loan that would help the country cure its economic malaise. International Monetary Fund (IMF) declined to issue the amount in the wake of noncompliance of Pakistan's government to its structural adjustment program. Fiscal manager's inability to expand tax to GDP ratio, principally failure in levying reformed general sales tax, stopped the release of IMF's next tranche.

Pakistan's economy is in hot water and any wastrel on public funds can work as a last straw. Dr. Sheikh rightly said that check and balance is imperative to ensure proper utilization of domestic resources on upkeep of the military institution that accounts nearly 50 per cent of the total estimated spending in 2011-12.