Federal Budget for the fiscal year 2014-15 was presented on 3 June 2014. The total outlay/expenditure of the budget is Rs. 4,302 billion, which is 7.9% higher than the previous budget. The budget has been presented at a time when economic indicators appear to be appearing promising.
Before I go on to the defence budget, I will discuss the salients of the announced budget for meaningful understanding of the readers.
For the current budget, total current expenditure, excluding repayment of long term foreign debt, is divided into: debt servicing of Rs. 1,325 billion, pension Rs. 215 billion, defence affairs and services Rs. 700 billion, grants and transfers Rs. 371 billion, subsidies Rs. 203 billion, running of the civil government Rs. 291 billion, and provision for pay and pension reform Rs. 25 billion. In addition, repayment of long term foreign debt is Rs. 333 billion.
Thus, projected fiscal deficit of Rs. 1,711 billion (4.9%) will be financed through external financing of Rs. 508 billion, domestic borrowing of Rs. 914 billion and estimated provincial surplus of Rs. 289 billion.
For 2014-15, the current expenditure will be Rs. 3,463 billion and development expenditure is Rs. 839 billion. The share of current expenditure in total outlay for 2014-15 is 80.5% as compared to 78.8% for 2013-14. The expenditure on General Public Services is estimated at Rs. 2,543 billion, which is 73.4% of the current expenditure. The size of Public Sector Development Programme (PSDP) for 2014-15 is Rs. 1,175 billion. Out of this, Rs. 650 billion has been allocated to provinces. Federal PSDP has been estimated at Rs. 525 billion. Out of Federal PSDP, Rs. 296 billion to Federal Ministries/Divisions, Rs. 176 billion to Corporations, Rs. 12.5 billion to Pakistan Millennium Development Goals and Community Development Programmes, Rs. 36 billion to Federal Development Programmes/Projects for Provinces and Special Areas, and Rs. 5 billion to Earthquake Reconstruction and Rehabilitation Authority (ERRA). The other development expenditure outside PSDP has been estimated at Rs. 162 billion. Bank borrowing has been estimated at Rs. 228 billion, which is 53% lower than 2013-14. Interestingly, whole of the PSDP will be financed by the external resources.
Defence Affairs and Services' budget is a portion of the Federal budget that goes to any military-related expenditures. This portion of the budget is spent on paying salaries, training, and health care of personnel, maintaining arms, equipment and facilities, funding operations, and buying new equipment. The budget funds all branches of the Armed Forces: the Army, Navy and Air Force.
For 2014-15, a total allocation of Rs. 700 billion is proposed for the Defence Affairs and Services which is 16.27% of the total amount. In real terms the growth of the defence budget is 3.8%. Many critiques do not take into account the effect of inflation when estimating growth, which is absolutely inappropriate.
It needs to be underscored that Pakistan used to spend 7% of GDP on defence in 1988, which came down to 3.9% in 1999-00 and for this year it is 2.4%. Thus, economic burden of military on the economy has sharply gone down over the years due to introduction of austerity measures.
Defence budget is broadly divided into defence administration and defence services. Defence services receive 99.7%, while the remaining 0.3% is for administration budget. For 2014-15, defence administration will face a 7% decline in its real budget. Whereas, defence services’ budget in real terms will grow by 3.8%. Defence services’ budget is further divided into employee-related expenses (42.05%), operating expenses (25.81%), physical assets (21.89%), and civil works (10.50%). So the biggest category for budgetary purpose is employees.
The highest budget growth of 9.6% is for civil works whereas the lowest budget growth of 0.7% is for the employees-related expenses. Given such a distribution and growth, the increase in defence budget is just sufficient to meet the requirements of the forces that are engaged in war on terror.
Some writers have been critical of classifying military pensions under a different heading along with civilian pensions. It may be noted that the International Monetary Fund's Government Financial Statistics Yearbook collects expenditure data according to a functional classification; functional classifications typically place all pensions within the social security function, healthcare within the health function, etc. Accordingly, many countries report military pension expenditure according to a functional definition. Pakistan is one of them.
Having a look at salient features of the overall budget, the resource 'availability' for the year has been estimated at Rs. 4,074 billion. The revenue 'receipts' (net) have been estimated at Rs. 2,225 billion indicating an increase of 16% over the last year. The provincial share in federal revenue receipts is estimated at Rs. 1,720 billion, which is 14.5% higher than last year. The net capital receipts for 2014-15 have been estimated at Rs. 691 billion against the budget estimates of Rs. 493 billion in 2013-14. The external receipts are estimated at Rs. 869 billion, which shows an increase of 50.7%. This also reflects growing reliance on external resources rather than domestic ones!
During current year, the GDP grew by 4.14% as compared to 3.6% in last year. Exports and remittances grew by 3.2% and 11.9% during 2013-14 as compared with 0.4% and 5.6% respectively during 2012-13. Per capita income has risen from $1369 in one year to $1386. Fiscal deficit has come down from 8.6% in 2012-13 to 5.8% during 2013-14. It is achieved by both a reduction in current expenditure and some improvement in tax collection. Other noteworthy achievements during the year include sale of Eurobonds and auctioning of 3G, 4G spectrum licenses. These achievements indicate of some rebound in the confidence of international investors in Pakistan's economy.
Despite above achievements, the state of economic health of the country is not very reassuring as the inflation rate rose from 7.4% in 2012-13 to 8.7% in 2013-14. Tax-to-GDP ratio is hovering around 7.0%, implying that to implement development projects, government borrows heavily. Tax exemptions given mostly to pressure groups increased from Rs.239.5 billion in 2012-13 to Rs. 477.1 billion in 2013-14. Thus, despite rhetoric no serious effort is made to raise Tax-to-GDP ratio.
Agricultural output has slipped by 1.5 per cent points from its target of 3.6%. This decline has eroded farming community's demand for goods produced by the rest of the economy and lower availability of agricultural raw materials for the manufacturing sector. Thus, stagnation in agricultural economy has widespread adverse implications for the entire economy. Hardly any change in the investment rate is recorded.
The critiques of the defence budget should ask the government to raise more revenue through taxes instead of suggesting cut in defence budget. Had we properly spent the allocated amount for development, education, agriculture, and health during last six years, the situation must have been much better. The beauty of armed forces is making use of all available budgetary allocations with a planning that encompasses far-sightedness.
Government needs to establish effective monitoring mechanisms so that the wide-spread problem of rent seeking is addressed. It needs to ensure that the development budget is spent rightly and its benefits equitably reach all sections of the society. Only then people will be motivated to pay taxes cheerfully!
The writer is a Professor of Economics at School of Social Sciences and Humanities at NUST, Islamabad.
Like it or not, Pakistan’s defence budget always attracts a lot of attention both from the United States of America (USA) and India: the USA, because its important interests are engaged in Pakistan and the surrounding region, and India, because she has gone to war three times with Pakistan since 1947. However, when making a historic assessment of the Pakistani defence budget over the years, the matter should really be looked at and evaluated from the perspective of our own security concerns, both external and internal. And it is in this context that we have to maintain a careful balance between the ever present financial constraints of a struggling Pakistani economy and the growing challenges on national and regional security. On the one hand we have to be mindful of what the Indians are doing to beef up their defence spending and on the other hand also be aware of the reality that Pakistan is in the midst of a war on terror since 2001; a war that has cost the nation dearly in terms of personnel, material and finances, and more importantly a war that has yet to be taken to its logical conclusion: defeating the enemy within and outside.
India recently (in February 2016) announced its 2016-17 fiscal budget and defence got $51 billion, 2.25% of India’s GDP. In real terms though the Indian defence budget would be even higher since pensions, border forces, and nuclear warheads (missile development are not included in this amount). In comparison (as per analysis released by Pakistan Ministry of Defence) Pakistan’s defence budget is the lowest in the region. It spends roughly the same allocation as a percentage of GDP (2.30%), but we all know that Pakistan’s GDP is much smaller than that of India; about one eighth. Last year, India overtook Germany to rank at number 8 in the list of countries with the highest military expenditure. It spent more money on national defence than countries like Germany, Brazil, South Korea, Italy and Canada. Pakistan on the other hand ranks at number 27 on the Global Index of Defence Budgets and in 2015-16 spent about $7 billion on its military budget. By the year 2020, India is expected to emerge as the third-biggest country in terms of defence-related expenditures, behind the USA at number 1 and China at number 2. It is expected to spend a whopping $70 billion in the year 2020 on Military Power Projection leaving Pakistan so far behind that it would be virtually impossible for Pakistan to even dream of matching the Indian spendings, in the process leaving it more and more vulnerable against a stockpile of military power developing on the not so friendly eastern side of its borders.
The thing is that with India’s economy expanding at a much higher pace than Pakistan’s – India’s GDP is growing at 7%, whereas, Pakistan’s GDP growth still hovers around 4% mark – and given that the existing Indian economy is already nearly 8 times the size of Pakistan’s economy, essentially in economic terms India virtually adds one whole of Pakistan’s total economic turnover to its economy every year. The next question which then arises is: are India’s armed forces also expanding in the same proportion, i.e. adding to their military might every year equivalent to the whole of Pakistan’s annual defence budget? The answer is: Yes.
India is frantically building and inducting aircraft carriers, Su-30MKI jets, artillery guns, stealth destroyers, stealth frigates, conventional and nuclear submarines, various offensive and defensive missile systems, military satellites, new mountain strike corps, attack helicopters and much more every year. Agreed that Pakistan’s economy in comparison to its Indian counterpart has serious size limitations, but in wake of such weapon frenzy by India, it will be foolhardy to sit idle and not work on developing a credible defence to safeguard its sovereignty.
So naturally in response Pakistan’s Defence Ministry would be looking at a higher allocation in the coming fiscal budget 2016-17, as it plans to acquire and mobilize a new weapon system and with Zarb-e-Azb in full swing it needs more funds to tackle the prevailing law and order and security situation within the country. In addition, the nuclear development program requires continuous resource allocation because one must not forget that Pakistan tested in response to India’s tests, as otherwise given India’s conventional superiority plus nuclear weapons would have become an unacceptable threat to Pakistan amidst an environment of distrust and unresolved issues between the two countries. While, given the asymmetric power situation, Pakistan is unlikely to provoke India but then again India on the other hand has a Cold Start Doctrine that means a sudden strike by it against Pakistan if there is a terrorist attack in India and by the way it will be India that determines whether or not it was sponsored by Pakistan! Threat of war aside, a focus on our necessary defence needs also means that it allows us to maintain strategic stability in our relations with India as well as Afghanistan since there is a conscious realization here that our very own internal stability and prosperity depends on regional stability.
The so called mantra of 70% defence budget is nothing but a pack of lies or display of sheer ignorance. In fact, Pakistan’s defence budget ever oscillates between 15 to 18% for many years. A country’s defence spending depends on a combination of different factors that include: war or the perceived risk of war; security environment such as military expenditure incurred by neighbours; the momentum of the regional arms race; attitude of neighbours, meaning they are friendly or hostile; geo-strategic considerations; and last but not the least, availability of economic resources. Pakistan too has to factor in all these elements when deciding what it needs to spend on its defence. Contrary to the general perception, Pakistan’s defence spending (in purchasing power terms) as a percentage of its GDP and in relation to the various new tasks now shouldered by the Pakistani military, has actually been registering a decline; especially when viewed in proportion to the additional responsibilities the armed forces have had to assume in recent years – taming extremism, countering terrorism, overcoming destabilizing missions of foreign agencies, fighting separatists, protecting civilians, fighting resultant destruction from natural disasters and calamities, and rooting out corruption. Divide the available resources between the funds required in supporting operations against all these new challenges and the total allocation appears rather meagre.
The dilemma being that while the economic managers don’t have much fiscal space to play with, Pakistan’s current high security needs obviate any possibility of curtailing defence expenditure, which already are quite constrained. In fact, with high internal risks and mounting external pressures both on our eastern and western borders, security will need more funding. All indications suggest that India is now in the process of developing a nuclear missile shield. If this happens, it won’t be a defensive arrangement as the name might suggest but an offensive deployment of radars and ballistic missiles designed and deployed to take down incoming missiles at a far-off distance; thereby neutralizing our strategy of off-setting conventional warfare disadvantage by developing nuclear deterrence. With so much at stake, it is imperative that we do not fall behind in securing our national defence and at least the gradual pace of increase in our security/defence expenditure should continue at any cost. In this backdrop, the myth of 70% and maligning of Pakistan Defence Budget appears to be enemy’s trick. It is far off from reality and evidence. Those who fell in the trap of 70% and malign Pakistan defence forces can be called naïve in good faith only – if not friend of the enemy!
The writer is an entrepreneur and economic analyst. He can be reached at
Ever wonder why global attempts to achieve security are leading to an increasingly insecure world? The answer lies in our understanding of security. There are four mutually nonexclusive and interconnected levels of securities: global, national, regional, and individual (or human). Their interconnectedness makes it difficult to achieve security at any three levels ignoring the fourth one. Thus it is not the case of choosing between ‘either’, ‘or’, but the case of pursuing all four levels simultaneously.
Working for global security is the collective obligation of all responsible nations. In fact the Article 1 of the United Nations’ charter states the maintenance of “international peace and security” as the main objective of the organization and obliges all members to “take collective measures for the prevention and removal of threat to the peace”, and for the suppression of acts of aggression or breach of the peace. Pakistan’s support in war on terrorism after September 2011 is the manifestation of its commitment to stick to the cause of global security.
Sociopolitical instability leading to violence does not only threaten national security but also regional (and at times global) security, too. By ignoring the human dimension of security, the state has failed to address one major factor that perpetuates violence, conflict and physical insecurity. It is about time to bring a paradigm shift and start taking individual insecurity as a nontraditional security threat. Secure individuals are the guarantee for a secure state, region, and globe.
Similarly, Pakistan always has striven to be involved in regional security mechanisms in order to ensure its national security as well as the security of the larger region of which it is a part. It joined various regional accords and networks such as the Baghdad Pact (CENTO) and the Manila Pact (SEATO) as early as the first decade of its creation. Since the 1980s it has been one of the leading members of the South Asian Association for Regional Cooperation (SAARC) and is looking forward to host the next SAARC heads of state/government summit in February 2016. Additionally, it has engaged with all its neighbours in various economic, trade, and other agreements. On the military side, Pakistan has fought three wars with India, to challenge its eastern neighbour’s ambition to become a regional hegemon. Pakistan also fought a decade-long proxy war against the Soviet Union on Afghan soil during General Zia ul Haq’s era. All of these actions are manifestations of its desire to remain a relevant player in regional security. The third and most important level of security that Pakistan tries to achieve is security at the national level. Till recent past almost all countries have tried to attain national security through military means alone. However, of late the threat within is being realized and an attempt is being made to win the hearts along with the battle.
This brings us to the fourth level of security, i.e., human security. According to the UN Commission on Human Security, it is the protection of the vital core of all human life in ways that enhances human freedom and human fulfilment. Thus human security encompasses building strengths, resilience, and aspirations against external and internal shocks. It also encompasses creating enabling system (political, social, economic, environmental, cultural etc.) to assure survival, livelihood and dignity. Social sector development is one of the keys to human security. Unfortunately human security could never become a priority in Pakistan. At times it was compromised of “politically vested interests” due to or perceived to be clashing with “national security interests”. The neglect of human/individual security is evident from the country’s current account expenditure. The country’s current account expenditures can be classified using four “Ds” – debt repayment, defence-related expenditures, day-to-day administration costs, and development-related expenditures.
The Government of Pakistan would like to maintain its credit rating, which means it cannot default on its debts; debt repayment has to happen. Almost 45% of federal revenue is spent on debt and markup payment. Pakistan is in a state of proxy war. The country has to spend huge amount of money to achieve its global, regional, and national security goals. Expenditure related to defence, security and, law and order, therefore, cannot be curtailed and consume around 20% of federal revenue. Similarly, the entire administrative machinery will come to a halt if the government does not spend money on its day-to-day running. Thus the first three ”Ds” have ended up consuming more than 80% of national income pie.
The only type of expenditure that seems flexible is public-sector development expenditure. Thus, every time there is a fiscal problem (mainly due to overspending on the first three Ds), the size of the Public Sector Development Programme (PSDP, which includes expenditures on public infrastructure development and provision of basic services such as health, education, drinking water, sanitation, disaster preparedness, and communication etc.) is slashed.
We saw this happening in 2008-9 when the size of the federal PSDP had to be reduced from Rs. 337 (US$5.61) billion to Rs. 210 (US$3.5) billion because Pakistan could not convince the “Friends of the Democratic Pakistan Forum” to provide financial assistance. It happened again in 2009-10 when the federal PSDP had to be slashed from Rs. 421 (US$6) billion to Rs. 300 (US$ 4.2) billion because expected budgetary support from the Kerry Lugar Burman law did not materialized. The size of the federal PSDP was yet again reduced from Rs. 280 (US$3.5) billion to Rs. 140 (US$1.75) billion in 2010-11 because the Government of Pakistan had to divert funds to flood rehabilitation. Last year, FBR missed its tax collection targets and the PSDP budget saw a cut of Rs. 120 million (block allocation). While allocations for the PSDP have suffered downward revisions for all these years, the budgeted expenditures on debt repayment, defence, and day-to-day administration have increased. It is pertinent to mention that the PSDP is perceived to be a lubricant for the growth engine and a guarantor of individual (read: human) securities through social-sector development.
The effectiveness of a successful PSDP, in fact, can be gauged from reduced human/individual insecurities. What happens when spending on public-sector development is curtailed? It curbs human development and gives rise to economic, financial and even social insecurities among the members of the society. These human/individual insecurities are further aggravated in unusual times like those that Pakistan is currently enduring. In the absence of an effective social safety net and in the presence of huge income inequalities, individuals with insecurities may resort to extraordinary behaviours (poverty does not always lead to crimes and militancy). Some of these behaviours, as reported in the Pakistani media, include violent and destructive protests for basic amenities such as the uninterrupted supply of electricity, natural gas, and water; resorting to industrial actions (which may turn violent); organ trade and putting children on sale; engaging in various criminal activities (theft, burglary, robbery, kidnapping for ransom, among others); and forcing women to engage in prostitution and children into child labour. In the worst cases, some people commit suicide and/or kill all their family members, while a few fall prey to the jihadi propaganda of militant groups and become suicide bombers or militants. All these behaviours not only promote intolerance and violence, but they also lead to socio-political instability. Due to Pakistan’s peculiar geo-strategic situation, any socio-political instability has the potential to create a situation in which regional or global players may want to intervene.
However, this is but one aspect of human/individual insecurity. In the absence of strong social safety nets and in the presence of huge income inequalities, perception of individual marginalization, social vulnerability, social exclusion, and various forms of poverty may lead to social conflict and contestation over scarce resources when individual insecurities take on a collective identity – whether ethnicity, creed, gender, class, or region. This type of social instability may erode the basic societal fabric when it turns violent. The evidence that this is already taking place in today’s Pakistan is there for everyone to see in the cases of urban violence in Karachi and the militant nationalist movement in Balochistan. As mentioned earlier, sociopolitical instability leading to violence does not only threaten national security but also regional (and at times global) security, too.
As a matter of fact, Pakistan’s development challenges present a classic example of the maxim that insecurity in any form breeds other forms of insecurities.
A report jointly released by the United Nations’ World Food Programme (WFP) and the Sustainable Development Policy Institute (SDPI), observed that the state of food security in Pakistan has deteriorated since 2003. The report reveals that the conditions for food security are inadequate in 61 percent of districts in Pakistan. This percentage is a sharp increase from 2003, when conditions for food security were inadequate in only 45 percent of the country’s districts. In terms of population, more than half of the people living in Pakistan (53 percent) are food insecured (without access to sufficient food for active and healthy life at all times).
The report found circumstantial evidence that most of the food-insecure regions are also the most conflict prone and violent areas of the country. The Federally Administered Tribal Area (FATA) – the theatre of war against terrorism – has the highest percentage of food insecure population (67.7 percent), followed by Balochistan (61.2 percent), and Khyber Pakhtunkhwa (56.2 percent), the latter two hobbled by religious and ethnic militancy respectively.
Despite the fact that there is, in fact, no empirical evidence to prove that food insecurity is the only cause of militancy, violence and conflict in the above mentioned parts of Pakistan (or vice versa), it is an established fact that the relationship between violence, conflict and food insecurity is reciprocal, creating a vicious cycle that continues challenging the transition to sustainable development.
By ignoring the human dimension of security, the state has failed to address one major factor that perpetuates violence, conflict and physical insecurity. It is about time to bring a paradigm shift and start taking individual insecurity as a nontraditional security threat. Secure individuals are the guarantee for a secure state, region, and globe.
The writer is the head of independent policy think-tank Sustainable Development Policy Institute (SDPI). He tweets at @abidsuleri
Strong economy and strong defence are considered to be the two pillars of the state. A strong economy can ensure strong defence; it will enhance country's power and hence make its defence even stronger. According to Paul Kennedy, a nation's military strength rests on its economic strength and military strength is nothing but power and power is defined as the ability of a country to influence the behaviour of other countries in accordance with its aims and objectives. Power can lead to prosperity and prosperity may generate more power. According to Robert McNamara (former US Secretary of Defence and President of the World Bank) security means development and without development there is no security. Just as peace favours development, development ultimately favours peace. But peace cannot be bought, rather it is earned through diplomacy and military might.
It is equally true that economic backwardness generates violence, social conflicts and political turmoil. A strong economy, therefore, also ensures political and social stability, which, in turn, makes the economy even stronger. The moral of the story is that a strong economy is sine qua non for strong defence and not the other way around. The former Soviet Union provides a classic example of this fact. While Soviet real GDP growth continued to decelerate from an average of 7.1 per cent per annum in the 1950s to 2.7 per cent during the 1980s, its defence spending continued to rise from 9.0 per cent of GDP to 15.4 per cent during the same period. Soviet economy was not in a position to sustain such a large defence spending and eventually it collapsed as a country. It is also argued that the two wars (Iraq and Afghanistan) that the United States fought since 2001/02 contributed immensely in weakening US economy over the last one decade. It is for this reason that the government should give greater attention to economy with a view to sustaining strong defence.
Pakistan's defence budget remained under severe scrutiny, within and outside the country for decades. Every one interpreted Pakistan's defence budget from his/her own perspective and interest, often not based on facts and figures. They criticized vehemently the defence budget of Pakistan solely for political reasons by distorting the facts. Mark Twain once remarked, “Get your facts first, and then you can distort them as much as you please.” At times, those who were critical to Pakistan's defence budget, lost rationality. Those who presented facts were dubbed as agents of the “Establishment”. In this article, I intend to analyze Pakistan's defence budget by presenting facts, as facts speak themselves.
Certain myths have been created by the critiques about the defence budget of Pakistan. These include: i) that 80 per cent of Pakistan's budget is being consumed by Pakistan Armed Forces, ii) that defence budget is the single largest component of Pakistan's budget, and iii) that defence budget is rising at a much faster pace than other critical expenditures. Is this a myth or a reality? This article intends to answer these queries by presenting facts.
What Determines a Country's Defence Budget?
A country's defence spending depends on a combination of different factors that include:
• War or the perceived risk of war.
• Security environment, such as:
military expenditure incurred by neighbours.
the momentum of the regional arms race.
attitude of the neighbours (friendly or hostile).
• Armed conflict and policies to contribute to multilateral peacekeeping operations.
• Availability of economic resources.
Pakistan is in the midst of war on terror since 2001; a war which has cost the nation dearly in terms of men and material, and finances. The invasion of the United States in Afghanistan after the shocking event of the 9/11 opened up a new frontier (western front) for Pakistan to guard its national security. Pakistan continued to witness the rise in violent extremism and terrorism which has caused large-scale human suffering. The country has lost over 50000 civilians and security forces personnel beside a cumulative loss of over $100 billion in the last 13 years (Source: Pakistan Economic Survey 2013-14, Government of Pakistan). This has been the longest unconventional war that the country has fought thus far. The war is still continuing with greater intensity and dimension. It is quite natural that a country allocates relatively more financial resources to defence during the war periods and relatively less during the peace time. For example, the United States spent $1.5 trillion as war supplement cumulatively over the last 13 years over and above of its normal national defence budget which is about 4 per cent of GDP (Source: Growth in US Defence Spending Since 2001, US Department of Defence FY 2014 Budget Request, April 2013). As long as Pakistan continues to face unconventional war, the defence and security related expenditure may continue to rise. Did Pakistan's defence continuation of receiving adequate resources commensurate with evolving threat? The answer will be provided shortly.
Military expenditure incurred by neighbours, the momentum of the regional arms race and attitude of the neighbours also determine the size of the defence spending. Prior to the United States' invasion of Afghanistan and the subsequent developments for Pakistan's security, it concentrated exclusively on its eastern border with India for its defence. The invasion of Afghanistan has changed the security environment for Pakistan altogether. In addition to looking after the eastern border, Pakistan has been spending additional resources to protect its western border with Afghanistan. Such a change in security environment must have contributed to the rise in defence spending.
Pakistan has fought three wars with India since its inception in 1947. India's defence spending is rising at a pace that puts her at the list of the top ten defence spending countries in the world. India spent $39 billion in defence and accounted for 2.4 per cent of the world's military spending in 2009. Its defence spending rose to $47.4 billion and accounted for 2.7 per cent of world military spending in 2013. India's defence spending is close to that of Japan ($ 48.6 billion) and Germany ($48.8 billion). It has indulged in arms acquisition in a much larger way as well (Stockholm International Peace Research Institute (SIPRI) Year Book 2014).
India is not only a nuclear power but is actively involved in the development of thermonuclear weapons by expanding a covert uranium enrichment plant. The newly elected government in India under the leadership of Prime Minister Narendra Modi intends to build up India's military capability by inducting more sophisticated weapons in its armoury. In so doing, the government intends to spend additional $200 billion in acquisition of sophisticated weapons (Source: Farrukh Saleem, Monthly Hilal, June 2014). Western power, in order to get their shares of pie, are rushing to India and encouraging it to go for large-scale acquisition of arms and ammunitions. Although India would justify its arms acquisition and weapons development programmes to counter China in the region (India has fought a low intensity border war with China in 1962), the fact of the matter is that these large-scale military spending on arms acquisition and weapons developments are purely directed towards Pakistan. Such developments are bound to force Pakistan to raise its defence spending to maintain a minimum deterrence viz. India.
Armed conflict and police to contribute to multilateral peacekeeping operations also determine the size of a country's defence spending. Pakistan has been the single largest contributor of armed forces to the United Nations peacekeeping operations in conflict zones in different parts of the world (See monthly Hilal, June, 2014). This may have contributed to the rise in defence spending in Pakistan.
Availability of economic resources is yet another factor that determines the size of defence spending in a country. China and India, the world's two emerging economic powers, are demonstrating a sustained increase in their military expenditure and contributing to the growth in world military spending. In addition, high and rising world market prices for fossil fuels and minerals have also enabled some countries (Russia, Saudi Arabia, Azerbaijan, Chile and Peru) to spend more on their militaries (see SIPRI Report 2006). Has availability of economic resources helped Pakistan to raise its defence spending? Or did Pakistan raise its defence spending during the periods of economic boom? This is a valid question to which I will return shortly.
Defence Spending: The Reality
Various myths pertaining to Pakistan's defence budget have been created within and outside Pakistan. What is the reality? This leads to our discussion on the factual position of Pakistan's defence spending. Table 1 and Fig.1 are enough to break the myth about Pakistan's defence budget. Pakistan's defence budget at current rupee/dollar stood at Rs. 131 billion or $ 2.24 billion in 2000-01 and increased to Rs. 630 billion or $ 6.0 billion by 2013-14 – thus exhibiting a growth of 11.9 per cent and 7.3 per cent respectively. In other words, in rupee and dollar terms, Pakistan's defence budget increased by 4.8 times and 2.7 times in the last 14 years.
Defence spending at current rupee or dollar is uninteresting. Economists around the world have measured or presented defence budget at constant rupee or constant dollar term. In so doing, they took care of inflationary build up in the country. After adjusting for price level, Pakistan's defence spending increased from Rs. 131 billion to Rs. 199 billion or has grown at the rate of 3.0 per cent per annum over the last 14 years. Similarly, in constant dollar of 2000, Pakistan's defence budget increased from $ 2.24 billion to $ 4.33 billion during the same period, thus showing a growth of 4.8 per cent per annum. More importantly, contrary to the general perception, Pakistan's defence budget did not even double in the last 14 years (see Table 1).
Is defence spending a burden to the nation and its economy? Defence spending in relation to the size of the GDP as well as in relation to the size of the budget represents a burden to economy and budget, respectively. Table 2 and Fig. 2 clearly indicate a declining trend in defence spending. Pakistan's defence budget was 3.2 per cent of GDP in 2000-01, remained stagnant at that range until 2004-05, but declined to below 3.0 per cent of GDP in 2005-06. For the last six years, it has remained stagnant at 2.5 per cent of GDP – much lower than many developing and emerging economies. As total or consolidated size of the budget, defence spending continued to exhibit a declining trend over the last 14 years, declining from 18.3 per cent in 2000-01 to 12.1 per cent in 2013-14.
Contrary to the general perception created by the vested interest that “Pakistan's defence spending accounts for 80 per cent of the total budget”, the readers should know that it accounts for only 12 per cent of the budget and in fact, it was less than the subsidy provided by the government to its citizens in 2011-12 (12.8 per cent of the total budget) in the midst of war on terror. In constant dollar, the per capita defence spending increased from $16 in 2000-01 to $23 in 2013-14. It has virtually remained stagnant over the last 14 years as can be seen through Table 2 and Fig. 3.
For those who have interest in Pakistan's defence budget should know that interest payment is the single largest expenditure item of Pakistan's budget. Defence spending has remained almost one half of the interest payment over the last 14 years (See Table 3). Fiscal profligacy contributed to the persistence of large fiscal deficit, resulting in accumulation of public debt and contributing to the surge in interest payment accordingly. While defence spending was 18.3 per cent of the size of the budget in 2000-01, interest payment was almost 35 per cent. Even today, the interest payment accounted for 23 per cent of the budget as opposed to 12 per cent in the case of defence spending. Table 3 reveals that defence spending became a victim of rising public debt and concomitant rise in interest payment. As public debt rose because of the persistence of large fiscal deficit, interest payment continued to rise. To keep the budget deficit at a manageable level, the axe always fell on defence and development spending, including social sector. Interest payment alone is more than the combined spending on defence and development. It is the rising interest payment which is more worrisome than defence spending for the budget as well as for the economy. Surging interest payment has eroded fiscal space and forced the successive governments to keep allocation to defence and development at a bare minimum.
As stated at the outset, Pakistan's defence budget has remained under severe scrutiny within and outside the country. Such scrutiny has never been based on facts. An attempt is made in this paper to present facts about the defence budget of Pakistan. The main findings of the paper are summarized as follows:
Given the size and the dimension of national security challenges that Pakistan has been facing over the last 14 years, its defence budget has never been consistent with growing national security challenges.
Defence spending as per centage of GDP and the size of the budget has been on the decline, even in the midst of war on terror, the country is fighting for the last 14 years.
Pakistan is spending 2.5 per cent of GDP, 12 per cent of the size of the budget (not 80 per cent as critiques within, and outside, the country have always been quoting to misguide the people) and $23 per person on defence all during the war on terror.
It is the growing interest payment and not the defence spending which should worry us all. Fiscal profligacy contributed to the surge in public debt which, in turn, caused interest payment to balloon. Defence spending has been onehalf of the interest payment. Interest payment even surpassed the combined spending of defence and development.
Defence and development spending have been the major victims of ballooning interest payment.
While Pakistan's arch rival India continued its procurement drive of sophisticated weapons and emerged as top ten spenders on military in the world, Pakistan continued to spend modestly (2.5% of GDP and $23 per person) to maintain its minimum deterrence.
Encouraged by the western powers, India is spending over $47 billion on defence and intends to spend additional $200 billion in weapon acquisition in the next few years. Pakistan, on the other hand, is fighting a non-conventional war for 14 years in a row with differing intensities and continued to exhibit a declining trend in its defence budget. Even during the period of relatively stronger economy (2002-2007), its military spending continued to witness a declining trend. Therefore, the availability of resources did not increase defence spending in the case of Pakistan. The burden of defence budget continued to witness a declining trend.
Pakistan needs to give more attention to its economy. A strong economy can sustain higher defence spending but not the other way around. A large slippage is bound to take place in defence spending during the current fiscal year (2014-15) owing to the largescale military operations in North Waziristan area. The government has allocated Rs. 700 billion or roughly $7.0 billion in 2014-15 budget. Given the scale and dimension of military operations and the attendant rise in expenditure, large slippages in defence spending cannot be ruled out.
In the end, I would urge the critiques within, and outside, Pakistan that if they want to criticize defence spending, their facts should be right. Unilaterally criticizing a country's defence budget would not serve any purpose. Critiques must take into consideration the various factors that determine the size of any country's defence budget. When hostile neighbours go on spending spree on weapon acquisition, it is difficult for a country to cut its defence spending. Easing of international political climate may create the potential for reduction in defence spending.