'Indirect hike' in Pakistan defence budget

By Amit Baruah

ISLAMABAD, JUNE 18. In a deft manoeuvre, the Musharraf Government has transferred Rs. 26.1 billions from the defence outlay on military pensions to a civilian head, thereby ``reducing'' the defence budget from Rs. 143.4 billions to Rs. 133.5 billions for the financial year 2000- 2001.

With a midnight budget (another first for the military Government) being announced on Saturday, journalists were not even provided with the budget papers to check the details. Beginning his speech at 6.15 p.m., the Finance Minister, Mr. Shaukat Aziz, ended his television broadcast a little before midnight.

As it turns out, the effective military budget for the current financial year beginning July 1 has been increased by the Musharraf Government. With military pensions being shifted to civilian outlays, Rs. 133.5 billions actually amounts to an effective hike in military spending. If the transferred amount of Rs. 26.1 billions (on military pensions) is taken out of the previous year's budget (1999-2000), the previous year's military spending stands at only Rs. 117.3 billions while the current year's defence budget has been pegged at Rs. 133.5 billions.

Interestingly, the Finance Minister's television speech made no reference to the defence budget at all. Possibly, Mr. Aziz felt that since the actual number was ``down'', it may not be good for an India-obsessed military Government to reveal these details.

Today, however, was a different story. When asked by presspersons at a post-budget press conference, the Finance Minister admitted that ``some reclassification'' had taken place - transferring military pensions from the defence budget to civilian administration. Mr. Aziz said that whatever was required for defence had been provided to the armed forces. Referring to the recent increase in the defence budget of a ``neighbouring country'', the Finance Minister said Pakistan did not want an ``arms race'' with any country.

The other reason for an ``indirect'' increase in defence expenditure is the close monitoring of the country's economy by international monetary institutions.

A ``direct'' increase in the military budget, where 80 per cent of annual resources are eaten up by debt servicing and defence expenditure, would not have looked good for a country desperate to get IMF approval for renewed funding. Now, it can be explained away in terms of ``reclassification''.

The total expenditure on military pensions (Rs. 26.1 billions) is marginally higher than the total outlay for poverty alleviation programmes (Rs. 21.5 billions) in the current budget.

Mr. Aziz stressed today and in the budget speech that the budget had been formulated in a three-year context. It attempts to bring down the fiscal deficit to 3.5 per cent of GDP (as opposed to 6.1 per cent in 1999-2000) and increase the annual growth rate to 6 per cent. The growth rate for 1999-2000 has been pegged at 4.5 per cent.

Reiterating the need to widen the tax base, the Finance Minister said the scrapping of the wealth tax and stated that provinces in their budgets would reduce the number of taxes. Punjab, for instance, would reduce the number of taxes to nine from 29.

Vowing to continue with the documentation of the economy, the Finance Minister announced that the Government would raise an additional 24 per cent in revenues this year while Government expenditure would expand by only two per cent.

Of the 18 lakh tax payers in the country, 36,000 were registered companies, six lakh were salaried persons (paying Rs. 7 billions as income tax) and nearly seven lakhs were small traders contributing Rs. 3.5 billions to the national kitty. Indirect taxes contributed 68 per cent of total tax revenues, Mr. Aziz said.

A 100 per cent increase in expenditure on the Chief Executive's Secretariat, formerly known as the Prime Minister's Office (PMO), has been seen in 1999-2000. While Rs. 162.22 millions was allotted for the PMO last year, the actual expenditure amounted to Rs. 324.74 millions. (The PMO became the CE Secretariat in October 1999). For 2000-2001, Rs. 540.23 millions has been allocated for the CE's Secretariat.

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