Defence Budget and the Parliament

REPORT Defence Budget and the Parliament Briefing and Discussion Thursday, June 17, 2010; Hotel Marriott, Islamabad

is an independent, non-partisan and not-for-profit indigenous research and training institution with the mission to strengthen democracy and democratic institutions in Pakistan. PILDAT is a registered non-profit entity under the Societies Registration Act XXI of 1860, Pakistan. Copyright Pakistan Institute of Legislative Development And Transparency - PILDAT All Rights Reserved Printed in Pakistan Published: June 2010 ISBN: 979-969-558-226-8 Any part of this publication can be used or cited with a clear reference to PILDAT Published by Pakistan Institute of Legislative Development and Transparency - PILDAT Head Office: No. 7, 9th Avenue, F-8/1, Islamabad, Pakistan Lahore Office: 45-A, Sector XX, 2nd Floor, Phase III Commercial Area, DHA, Lahore Tel: (+92-51) 111-123-345; Fax: (+92-51) 226-3078 E-mail: info@pildat.org; Web: www.pildat.org

CONTENTS Preface Welcome & Introduction Mr. Ahmed Bilal Mehboob Executive Director, PILDAT 05 07 Defence Budget and the Role of the Parliament Mr. Nohman Ishtiak Financial Expert Discussion 09 11 Appendix A: Overview of Recommendations by the Indian Parliamentary Committee on Defence in 10 Years 17 Appendix B: Defence Budget 2010-2011: Presentation by Mr. Nohman Ishtiak 18

PREFACE ILDAT organized a briefing and discussion session on on June, 17, 2010 in P Islamabad. The purpose of the discussion was to assess the role of the parliament in the oversight of the defence sector and provide meaningful suggestions to improve upon the status quo. This report provides the details of the proceedings of the workshop. Acknowledgments This report has been prepared under the PILDAT project titled Research and Dialogue to Improve Civil Military Relations in Pakistan which is supported by the British High Commission, Islamabad. Disclaimer PILDAT team has made every effort to ensure the accuracy of the available data and any error or omission is not deliberate. Islamabad June 2010 05

Welcome & Introduction Mr. Ahmad Bilal Mehboob Executive Director-PILDAT The basic purpose of this briefing is to explain and discuss the issues related to this year's defence budget to the parliamentarians. Our key concern is to assess whether our defence sector shares the same level of details of its budget with the parliament, as their counter-parts in countries with similar security concerns? Parliament has the constitutional right to maintain oversight on the budget spending of all the sectors, including defence. Parliamentary oversight of the budget is the need of the hour and the budget making process should not be restricted to a few personnel, rather all the stakeholders should be taken onboard; the most important one being the Parliament. We believe that the role of the parliamentarians in the budget making process needs to be enhanced. The budget does not provide sufficient details of the defence expenditures. What needs to be realized is that there are no adverse effects of sharing this information with the public and its representatives. Similarly, it should not be deemed as a compromise on our national security. In fact, such a move would increase the confidence of the people in their armed forces and would also enable the parliament to perform its constitutional duties. In 2008, the Government included some details of the defence spending in the budget. Though these details were minimal, it is a step in right direction. The same pattern of sharing defence budget details is being followed since then, which should be improved through the addition of greater details. 07

It may be noted that the parliamentary committees all over the world scrutinize the defence expenditure to ensure that it is spent efficiently. In this context, it might be pertinent to cite the case of the Indian Parliament where the defence expenditure is scrutinized by a joint committee of Rajiya Sabha and Lok Sabha. This practice was initiated in 1993 and has continued since then. It is important to note that Parliament scrutinising defence budget does not always mean it will be an adversarial relationship. In fact an overview of the Indian Parliamentary committee on Defence s past 10 year recommendations shows that the committee has supported an increase in defence budget and made practical recommendations to allow that the unspent allocation on defence should not lapse. In 1993 the Committee recommended that the spending on defence should be economized and that the savings should be utilized for the technological advancement of the armed forces. The same rule is being applied ever since. Similarly, in 1995, the Committee recommended that their suggestions be made public, provided they don't compromise the defence of the country. In 1996-1997 the Committee recommended that the increase in the defence budget was nominal and armed forces required a greater allocation in the budget. In 1999, it supported the claim that defence budget was less as compared to the requirements and recommended more allocation. In 2001-02, the committee expressed similar concerns but at the same time recommended that merely huge spending cannot ensure effective security of the country, rather it requires effective finance procedures which ought to be integrated. In 2002-03, the Committee took notice of the unspent allocation and in 2006-07 it again expressed concern over what it thought of as insufficient allocation for defence while in 2008-09, it supported the increase in defence budget, saying that the government should provide a firm commitment for allocation of resources for the next five years, rather than on an annual basis. Appendix A carries an overview of the recommendations by the Indian Parliamentary Committee on Defence while reviewing the Indian Defence budget. government, which has been termed as the champion of reforms, should assist them in performing their tasks effectively. It is recommended that the defence committee should start deliberations on the Demands for Grants in the month of January every year. It should call in the Secretary of Defence and should seek a briefing on the utilization of the grants for the last three years. The recommendations of the Public Accounts Committee and the Committees on Defence should be incorporated in such a way that it neither compromises on the national security nor the need for accountability. We have the required expertise in our country but what we need is a greater political will in order to move forward in this regard. PILDAT has made a modest contribution in this field and all our publications are available on the website. How to Review Budget in Pakistan is the latest paper in this series, written by former Minister for Finance Omar Ayub Khan. It contains useful tips to review the defence budget. Similarly, case studies from countries such as India, UK, Indonesia, Turkey, etc. are also available on the PILDAT website. Unfortunately, our parliamentary committees are not entrusted with the exercise of such powers. Demands for grants are not referred to the parliamentary committees for deliberation, particularly the defence committee. These committees need to take the initiative themselves and the 08

Mr. Nohman Ishtiak Financial Expert The budget is the annual documentation of the revenue, expenditure, deficit and loans, etc of the government. According to the NFC Award, provinces will get Rs. 1034 billion while the Federal Government gets Rs. 1378 billion for its annual expenditure out of the federal exchequer. The total expenditure of the Federal Government has been estimated at Rs. 2229 billion while the budget deficit is estimated to be Rs. 852 billion. According to the budget document, the provincial governments will have to declare some surplus, which would ultimately reduce the budget deficit of the Federal Government. By June 2012, our domestic and foreign debts would amount to over Rs. 8700 billion. This is mainly due to the budget deficit and is equal to 55 per cent of the GDP. The Federal Government's tax revenue is Rs. 2075 billion while its non-tax revenue is Rs. 6655 billion. The Federal Government will collect Rs. 1952 billion through Federal Board of Revenue (FBR). The Federal Government has allocated Rs. 792 billion for the payment of interest, Rs. 495 billion for defence services, Rs. 96 billion for the payment of pensions, Rs. 228 billion for current expenditures, Rs. 180 for subsidies, Rs. 55 billion for grants to provinces other than the NFC, other grants of Rs. 3 billion, Rs. 36 billion for miscellaneous expenditures and Rs. 300 billion for development expenditure. The defence budget in Pakistan is utilized primarily on the defence services, physical assets, civil works, transportation and operating expenditures. In the federal budget, Rs. 209 billion have been allocated for the defence 09

of the country. If we look into the defence expenditure, it has three main heads: Appendix B carries the presentation of Mr. Nohman Ishtiak. 1. Defence Services 2. Defence Production, and 3. Pension In this context, Rs. 442 million have been allocated for defence services, Rs. 500 million for defence production, Rs. 72billion for pensions and Rs. 130 billion for the war against terror. The Employees' related expenditure of the armed forces is Rs. 170 billion. Contrary to Pakistan s scenario, the defence budget in India is much more detailed. It is available on the website just like any other ministry's budget. Major chunk of the defence budget is allocated on almost the same heads as that of Pakistan. A small amount is allocated for military farms in India. They also allocate health fund for retired personnel, inspection, stores, RSS, NCC, etc. However, the Parliamentary Committees in India scrutinizes the budget and gives its valuable input to make the allocations more efficient. Another relevant case is that of South Africa, whose budget is rated as one of the best budgets in the world, second only to the United Kingdom, as it contains effective mechanisms of parliamentary oversight. The budget in South Africa is performance based; the budget is allocated as per the policy priority. The government of South Africa makes capability-based medium term budget. Every policy measure is implemented and the required budget is allocated accordingly. The government provides maximum details of the budget so that even the common people can hold the parliamentarians accountable for the utilization of the funds. The parliamentary committees also play an effective role in the budget making process in South Africa. Similarly, other countries where such system of budget making is prevalent, the parliaments have enacted finance laws in this regard. Such acts make it mandatory for the ministries to provide information so that it may be scrutinized. The Federal Government in Pakistan is also trying to improve the budget making process. For this purpose, the policy document Medium Term Budget Estimates are published which contain policies and budget allocation for every ministry and division. It also contains policy priorities, called Medium-term Budgetary Framework. 10

Discussion Dr. Azra Fazal Pechuho MNA, Chairperson National Assembly Standing Committee on Defence, chaired the briefing. She thanked PILDAT for organizing such an informative session. She said that the people and the parliamentarians are becoming vigilant with the passage of time. Ms. Pechuho stressed that we support our military and despite various budget constraints, we would support the military in the purchase of modern armament to make the defence of our country invincible. She also said that the current government is leading by example and is focused on maintaining minimum deterrence in nuclear as well as conventional armament; the government ought to be given credit for performing such an arduous tasks in these testing times. Esteemed analysts such as Mr. Riaz Khokhar, Lt. Gen. (Retd.) Talat Masood and Dr. Gulfaraz Ahmad also participated in the discussion. They believed that the Parliament needs to develop a better understanding of the defence sector and must provide a policy input in the formation of a comprehensive national security policy plan. The Us versus Them approach of the defence sector should not continue and the Parliament's relationship with the Defence Sector does not have to, and will not necessarily, be adversarial. For a comprehensive security plan, an ownership on the country's defence and security has to be asserted by the Parliament as well as the people. The analysts were of the view that militaries alone cannot guarantee the security of the country without the support 11

of its public and public representatives. It was also stressed that there should be clarity in the defence spending and the army should focus on research and technology. Our country is engulfed in internal as well as external threats. We must salute our armed forces for their efforts, but this should not deter us from presenting the details of the defence budget in front of the Parliament, so that effective oversight and transparency can be ensured. It was said that the Army has not shared the details of the spending of the grants under Kerry-Lugar Bill and its sharing would be a positive step in this regard. It is understandable that there are certain issues which cannot be made public but certain information of military purchase should be discussed in detail in the Parliament. Similarly, it was stressed that the austerity drive should also be inculcated among the army generals as well. The participants, however, were of the view that parliamentary oversight can only be ensured when Parliament and the Executive perform their duties as per 12

the constitution like in other democratic countries around the world. Furthermore, it was suggested that we would have to put in more efforts to develop the capacities of the standing committees so that they provide their invaluable input. Transparency needs to be ensured in the utilization of the budget and the focus should be on developing security parameters for the people and the state. The Parliamentarians were cautioned that it is very important to understand the overall civil-military relations in the country. The country has been in a state of war for the more than three decades and consequently, the military emerged as the strongest institution. The Parliament should, therefore, not be impatient. It should first stabilize democracy and let it take roots in our society; asking the armed forces to be transparent should not be the starting point. The prioritization of the budget and the need to allocate more funds for other sectors was also discussed. It was said that Pakistan spends more on acquiring guns and less on the provision of bread for its people. It was stressed that the military should maintain a 13

minimum level of deterrence. the participants. Furthermore, Pakistan can do away with its budget deficit if it is able to rationalize its spending on defence. It was said that Russia had 5000 nuclear bombs but that couldn't save it from disintegration. Pakistan should learn from Russia and invest in its economy and development. It was stressed that a stable economy, political will, national well-being, psychological and diplomatic power, etc. boost the national security. Another matter under the discussion was the comparison with our neighboring country, India. It was observed that India has the third largest army in the world, fourth largest Navy in the world and fifth largest air force in the world, but at the same time the Indian economy is progressing at a galloping speed. The participants were of the view that we need to ask ourselves as to why have we been competing with India in the field of military and weaponry only, and not in economy, education, health, technology, etc. It was acknowledged that India is an emerging technology hub and in the coming years Pakistan will not be able to compete with her if it doesn't take drastic measures to improve its economy. The participants also admitted that India is overwhelming Pakistan on almost all fronts. While India is maintaining a strong economic growth, we are ambling at around 2 per cent growth rate. This trend would leave us far behind in the race and must not be allowed to continue. Another subject of concern was the role of the Parliament in the formulation and monitoring of the budget. It was noted that although the finance act is passed by the Parliament each year, yet there are no specified financial procedures which seek the Parliament's opinion with regards to the financial policies. Similarly, the post-budget performance review by the Parliament is also lacking. It was advised that the Parliament should be taken on board before as well as after the passage of the budget. Similarly, the need to improve the committee system, in order to improve the efficacy of oversight and to enhance the role of the Parliament was equivocally demanded by all 14

Appendices

Appendix A: Overview of Recommendations by the Indian Parliamentary Committee on Defence in 10 Years No. Year Increase Other Recommendations 1. 1993-1994 Supported and termed reasonable Amount saved through economy to be made available to same service for modernization (important principle to encourage economization and not to cut budgets in view of economy achieved) 2. 3. 4. 5. 6. 7. 8. 9. 1994-1995 Supported Need to make public report of Committee on Defence Expenditure saying a little more openness even in the matters relating to the Defence will not militate against the national interest Concerned that increase of 10.87% in budget estimates fell below the rate of inflation at 11.41% - so no increase in real terms in defence budget for 1996-1997! 1996-1997 Supported but termed 'notional' 1998-1999 Supported but termed 'inadequate' 1999-2000 Supported but termed 'notional Concern that defence expenditure as a percentage of overall budget had fallen from 17.55% in 1986-87 to 13.58% in 1996-97; from 3.58% of GDP in 1986-87 to 2.72% in 1994-95 Termed defence budget increase of 8.5% against inflation rate of 7.8% as only notional In real terms provision for items other than salary in the defence budget remains static, if not reduced. Indian defence budget stagnated at 2.4% of the GDP In the interest of the security of the country, defence spending should be raised at least to the level of 3 % of the GDP Questioned why recommendations by the MoD for budget were much lower than the projections made by the Services/ Departments and allocations made by the MoF were still less 2001-2002 Supported Amount allocated per ceiling made by the MoF was about 16% less than the amount projected by Services/ Departments. Effective Security can not be had by merely presenting a bigger defence budget. It requires effective defence finance procedures which in turn needs integrated defence planning organization. Tedious and time consuming procedures led to delay in defence spending 2002-2003 Supported Took note of unspent funds amounting to INR 50 billion 2006-2007 Supported Committee bothered about reduction of allocations at the RE stage compared to BE provisions Reiterated support for earlier recommendation for creating a Non-lapsable Defence Modernisation Fund (DMF) to ensure timely availability of Funds for acquisitions of defence equipment 2008-2009 Supported Need to achieve self-reliance in defence acquisitions Recommended higher percentage of allocation of budget to defence R&D which was about 4.5% of defence budget in 1994-1995 and at 6% of the budget due to committee recommendation Firm Govt commitment to be given for allocation of resources for five (5 years and not annually 17

Appendix B: Defence Budget 2010-2011: Presentation by Mr. Nohman Ishtiak 18

Pakistan Institute of Legislative Development and Transparency - PILDAT Head Office: No. 7, 9th Avenue, F-8/1, Islamabad, Pakistan Lahore Office: 45-A, Sector XX, 2nd Floor, Phase III Commercial Area, DHA, Lahore Tel: (+92-51) 111-123-345; Fax: (+92-51) 226-3078 E-mail: info@pildat.org; Web: www.pildat.org