Further hike in defence budget likely to deal with India threat

ISLAMABAD:

Pakistan may further increase the proposed defence budget for the next fiscal year to deal with the Indian aggression and spend more on indigenous research and development, in a move that may also require the provincial governments to share the additional cost.

Official sources told The Express Tribune that due to rapid security-related developments, the authorities concerned have started considering whether the earlier agreed 18% increase in the defence budget for fiscal year 2025-26 will be sufficient.

The issue has been discussed at the level of the Ministry of Finance, the Ministry of Defence and also with the International Monetary Fund, said the sources.

While responding to a question whether Pakistan requested the IMF to allow further increase in defence budget and to compensate it downward adjust the agreed primary budget surplus target, Finance Minister Muhammad Aurangzeb replied that "we remain committed to stay the course both in terms of structural reform agenda and meeting all quantitative and structural benchmarks".

Pre-May 10, the federal government had decided to give an 18% increase in the defence budget over last year's allocation of Rs2.1 trillion. This has also been agreed between the Pakistan Peoples Party and the Pakistan Muslim League-Nawaz during a meeting chaired by Prime Minister Shehbaz Sharif.

However, the IMF had indicated Rs2.42 trillion for defence spending for the next fiscal year, which was higher by only 12%.

The sources said that the IMF did not have an issue with the increase in the defence budget, provided the government has a fiscal room to fund it without compromising the primary budget surplus target of around Rs2.2 trillion or 1.7% of GDP.

The discussions are taking place at a time when the IMF's top man for the region, Jihaz Azour, was in Islamabad. Jihad held important meetings on Wednesday, including with the Finance Minister Muhammad Aurangzeb and some with other high profile state dignitaries, said the sources.

Jihad is also scheduled to meet with the Prime Minister today (Thursday).

The sources said in order to meet the heightened security situation, there was a need to increase the defence budget by at least one-fourth. This would require around Rs500 billion jump over this fiscal year, which was necessary to replenish the arsenals. The sources said that the additional money was also needed for the armed forces development programme and clearing some past defence-related liabilities.

For this fiscal year, Rs270 billion had been allocated for the armed forces development programme, which may have to be significantly increased in the light of regional developments, said the sources.

The additional financial needs to cement the country's defence have to be shouldered by the provinces. In a meeting with the Prime Minister a few days ago, Petroleum Minister Ali Pervaiz Malik had proposed that the provincial governments should bear at least half of the additional defence cost. The provinces are rich and have huge cash surpluses while the federal government is running in deficit.

India attacked Punjab and Sindh provinces and there is a need that also the provinces now should come forward to bear the cost, remarked the government officials.

The Finance Ministry was also considering diverting some of the unproductive subsidies towards meeting the nation's additional defence budget needs.

During one of recent meetings, the IMF's Mission Chief pointed towards allocating over Rs1 trillion for power sector subsidies despite the fact that electricity prices have come down. But the Power Division was asking for more money, said the sources.

The Finance Ministry can also divert some of the unproductive subsidies given for various banking sector schemes towards meeting the defence needs.

The coalition partners were battling for more development budget while terming the proposed Rs921 billion worth Public Sector Development Programme insufficient for the next fiscal year. Prime Minister Shehbaz Sharif has already constituted a committee to review the possibility of further increasing the development budget.

The government was contemplating increasing the development budget to over Rs1 trillion but the Finance Ministry wanted to restrict it and instead put money for the defence purposes.

The FBR remains the weakest link and a reason for the lower than the required allocations for the defence and the development. The FBR has been missing its tax targets by wide margins and it's almost all initiatives have backfired. Some of the IMF-FBR meetings this week did not go well due to the FBR's inability to fulfill its commitments.

Prime Minister Shehbaz Sharif on Wednesday constituted a committee to address the issue of stuck-up refunds of the refineries due to bad taxation policies and to inflate collection. It was decided that the Petroleum Division will consult with the Finance Division and Revenue Division to finalize the proposal regarding adjustment mechanism of sales tax on refinery products, according to the decision.

There is also a need to end the unjustified 1% advance income tax on exports in the budget after the normal tax regime has taken effect from this fiscal year.

Pakistan on Wednesday blamed India for a deadly attack on a school bus.

The Prime Minister's Office stated on Wednesday that in a reprehensible and cowardly act of terrorism, a school bus carrying innocent children was targeted today in Khuzdar, Balochistan by state sponsored proxies (Fitna Al Hindustan) of India which the world has largely come to know as epicenter of instability in the region.

Sequel to gross failure to intimidate Pakistan through overt military means, dastardly terrorist incidents are being orchestrated through their proxies at an intensified scale in Balochistan and Khyber Pakhtunkhwa, deliberately targeting civilians in a futile attempt to destabilize the Pakistan, according to the Prime Minister's Office.

The dastardly incident led to martyrdom of three innocent children and two soldiers along with 53 injured including 39 innocent children of which 8 are critical, according to the government.

Given the heightened tensions, the authorities said that the next year's defence budget has to be exceptionally increase one-time to strengthen the capabilities of the army, navy and the air force.