Moving beyond defence budget cuts

The key is to carefully differentiate between wasteful and necessary govt expenditure and undertake some bold reforms

Hasaan Khawar June 11, 2019

Pakistan’s fiscal situation is precarious and the government is facing an uphill task to reduce the fiscal deficit from the current staggering level of more than 7%. Revenue mobilisation alone cannot do it and therefore a part of it has to be achieved through budget cuts.

Military has already announced voluntarily taking a cut in the defence budget through various measures, including no salary raise for the officers.

The announcement of voluntary cuts is quite interesting in the context, where many critics are quick to attribute shrinking fiscal space to our defence spending. Irrespective of the fact that Pakistan does have a sizeable defence budget, this narrative can’t be further from the truth.

Let me share a few nuggets of information:

Government’s budget documents reveal that both the civil and military budgets have grown at exactly the same average rates in the last decade and therefore their share in the overall pie has stayed precisely the same as 2008. Any claims to the contrary fail to look past the changes in federal versus provincial split of resources and functions, before and after the 18th Constitutional Amendment.

World Bank data shows that military spending as a percentage of GDP has gone down by 50% in the last three decades, a rate of reduction much faster than South Asia. Since 2008, military spending as percentage of GDP has marginally grown but at a much slower rate than the growth in overall government current expenditures.

Even more interestingly, World Bank data establishes that the share of military spending as a percentage of total government expenditure has in fact gone down by one-third (or 8.4 percentage points), since 1993 (oldest available data).

Moreover, our defence budget is not the largest expenditure head and is in fact much lower than civil government expenditure at the federal level, even after taking into account defence spending booked outside defence affairs.

The logic behind presenting these nuggets is not to say that our defence spending shouldn’t be rationalised but rather to emphasise that military’s share of 16% in overall government spending shouldn’t be used to evade scrutiny of inefficient government spending of the rest of the 84%.

We rarely talk about the fact that while ‘defence affairs and services’ grew by 13% a year on average since 2008, ‘running of civil government’, covering salaries and employees’ expenditure at the federal level, registered an average increase of 16% a year, despite the fact that a total of 43 federal departments in 18 ministries were abolished in 2011-12 as part of the 18th Amendment.

Our exponentially rising debt levels have choked our fiscal space. Debt servicing alone is currently double the size of our budget for ‘defence affairs and services’ and 60% more than the overall defence budget.

The real issue at hand is the rapid increase in overall government expenditure much beyond the GDP growth and without adequate revenue generation. Since 2001, the government’s final consumption expenditure has steadily grown from merely 7% of GDP to 11%, without a corresponding increase in government revenues.

The civil government now also has to come up with budget cuts. The government has already created a task force for austerity and government restructuring. The media reports have indicated some plans in the pipeline for rationalising the number of ministries. But we must understand that mere tinkering with the government structures won’t work.

Moreover, reducing government spending is a double-edged sword. Beyond the immediate promise of austerity and fiscal space lie the untoward consequences of deterioration in service delivery outcomes and dampened growth.

The key therefore is to carefully differentiate between wasteful and necessary government expenditure and undertake some bold reforms or else the budget cuts will do more harm than good.

Published in The Express Tribune, June 11th, 2019.

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