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Analysts: Pakistan Budget Hike Provides Little

Jun. 18, 2013 - 06:06PM   |  
By USMAN ANSARI   |   Comments
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ISLAMABAD — The increase in defense spending under Pakistan’s new defense budget is largely consumed by wages and the cost of anti-insurgency operations, analysts say, providing little real increase for the military.

Unveiled by the new Pakistani government of Prime Minister Nawaz Sharif’s Pakistan Muslim League-N June 12, the budget, converted from Pakistani rupees, amounts to some US $6.36 billion, a rise from the previous budget of approximately US $4.6 billion.

It comes at a time of severe economic hardship.

According to the text of the unveiled budget, GDP growth has been below 3 percent and inflation has remained at 13 percent, the highest for the past four decades, while foreign exchange reserves have fallen from $11.1 billion to $6.3 billion.

The defense budget does not usually include procurement. It mainly consists of wages and operational costs with increases fueled by ongoing counterinsurgency efforts.

Especially when considering the latter factor, said Brian Cloughley, former Australian defense attaché to Islamabad, , the higher budget is “no increase at all, really.”

This view is echoed by a former economic adviser to the government who now heads the Macroeconomic Insight Consultancy in Islamabad, Sakib Sherani, who says the increase is “barely in line with expected inflation.”

“In addition, with continued deployment in the western part of the country, I would assume it leaves little for anything else” Sherani said.

Cloughley highlights that “The main drain at the moment is the enormous operating costs involved in counterinsurgency in the west. F-16 and Cobra sorties alone are colossally expensive, plus troop reinforcement in [Khyber Pakhtunkhwa]/Federally Administered Tribal Areas is costing a fortune.

“I am sure that most of the increase is required by expenditure on operations in the west of the country. Operating costs of moving massive numbers of troops to KP from the border with India, then maintaining them in the field, are enormous. Daily resupply, alone, is most expensive in such terrain,” he said.

Ordnance expended during these missions is very expensive.

“Among other ordnance, Pakistan has bought [at full cost], 1,450 2,000-pound bombs, and 1,600 laser bomb kits for the F-16s. These alone would be over $200 million. And remember that between May 2008 and November 2011, the PAF conducted 5,500 sorties over the tribal areas, engaging 4,600 targets,” said Cloughley.

The increase, therefore, has essentially gone to the Army and Air Force, something mirrored in the fiscal 2012-2013 budget. In that budget, the Army was allocated $2.8 billion (an increase of $128 million), the Air Force was allocated $1.2 billion (an increase of $64 million), and the Navy was allocated $562 million (a decrease of $1.4 million).

However, no official breakdown of figures has been released for the 2013-2014 budget.

Exacerbating the already severe economic situation is a prolonged period of stagnant growth and inflation, made worse, according to Sherani, by corruption and maladministration during the tenure of the outgoing government of the Pakistan People’s Party (PPP).

The economic problems leave analysts to believe large-scale procurements are unlikely.

“There isn’t going to be enough money for submarines or refueling aircraft for the F-16s, for example. No really big-ticket items will be affordable” said Cloughley.

Sherani said he is unsure if “large-scale procurement can be funded from the budget for the next one to two years,” but is thankful that “ongoing programs have not met with funding cuts, to the best of my knowledge.”

Despite the economic woes, Salma Malik, assistant professor, at the Department of Defence & Strategic Studies, in Islamabad’s Quaid-i-Azam University, said some large-scale procurement is possible out of sheer necessity.

Noting that the Air Force has been particularly hard hit by the economic downturn, and did not receive any funds from 2007 under the Armed Force Development Programme 2025, she thinks funds may have to be found.

“On one hand, PAF equipment would be expensive implying that procurements may need to be phased out,” she said.

“However, the other aspect is equally true that a significant time gap is generally involved between commencement of the acquisition process and the operationalization of the equipment, for example, fighter aircraft, where they would be operationally ready; hence the sense of urgency.”

For this reason, she thinks “some allocation might happen straightaway.”

Other aspects of the budget include big increases for the two divisions of the Ministry of Defence, the Defence Division and the Defence Production Division. Their combined budget increased from $14 million in 2012-FY2013 to approximately $59.3 million.

The Defence Division received $35.5 million, up from nearly $12.6 million, the majority of which is for ongoing projects such as base development, with nearly $25 million slated for the National Electronics Complex of Pakistan, which is a major state-owned research-and-development organization.

The Defence Production Division received nearly $23.3 million, of which $22.8 million is for ongoing modernization of Karachi Shipyard and Engineering Works, the state-owned warship builder.

This includes the installation of a ship lift and transfer system plus associated equipment to improve the docking and repair facilities.

But under Pakistan’s dire economic circumstances, Cloughley said the longer-term outlook for defense spending is not positive.

“The best that can be hoped for is ‘steady as it goes’.”

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