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SINCE at least January of this year, Finance Minister Ishaq Dar has been talking about an extraordinary expenditure that he needs to meet of roughly Rs150 billion for security operations and IDP rehabilitation. The exact amount has varied in different places. Most recently, at the news conference at the conclusion of the latest review with the IMF, he gave the figure at roughly Rs140bn. In other places, the figure quoted has been Rs160bn, and back in January, he was quoted as saying that Rs100bn would be required for implementation of the National Action Plan (NAP).
This expenditure is unbudgeted, meaning it is not programmed into the expenditure plan laid out in the last budget. It is also a very substantial amount, and raising these kinds of funds is not an easy task. The matter has lurked in the background for months now, even though the finance minister has gone public with it on numerous occasions. He mentioned it on the day before leaving for Dubai for the last round of talks with the IMF in early February. He mentioned it on TV talk shows in the days following the petrol crisis as well, and on a couple of occasions, unnamed sources from the finance ministry were quoted in news reports talking about this figure.
During the sixth review with IMF back in February, the finance minister raised the matter with the Fund team. He needed permission to undertake this expense through borrowing and needed the fiscal deficit target revised upward to accommodate it. The Fund did not grant the permission, proof of which was in the fact that the fiscal deficit target following that round of consultations was left unchanged. The press release issued by the Fund following the sixth review made no mention of this request for extraordinary expenditure from the government of Pakistan, although the mission chief at the time did confirm to me on record that the matter was raised.
Is the amount, which is being billed as required for NAP, really needed for procurement of hardware?
“We have had discussions about the NAP,” he told me back then. “We understand that there is a legitimate need for expenditure increases, but there has been no final decision on change of fiscal deficit target. We will be discussing this further with the government in the coming weeks and months.”
Instead the finance minister was supposedly told to take up the matter at a higher level, either the MD or the deputy MD of the IMF. An opportunity to do so would present itself during the spring meetings of the IMF and World Bank in Washington DC which were scheduled for April 19.
Nothing is reported about what happened during the spring meetings. We know the finance minister attended, like he does every year. But we don’t know whether he raised the matter in Washington D.C. or what response was given.
What we do know is that the new mission chief of the IMF, accompanied by the director of the Middle East and Central Asia department, made an extraordinary visit to Pakistan in early March, during which the matter of this additional expenditure was also raised. But the press release following that visit made no mention of it.
Then again, on the eve of the seventh review with the IMF which finished earlier this week, at least two newspapers carried reports, some quoting the finance minister directly, that such an expenditure request was indeed going to be discussed with the Fund during the consultations and that the expenditure was necessary to undertake.
The press release issued at the conclusion of the seventh review contains this line: “[t]he mission welcomed the authorities’ plans to further reduce the fiscal deficit in 2015/16, while accommodating extraordinary expenditures related to flood rehabilitation, security enhancements to fight terrorism, and resettlement of internally displaced persons.”
In remarks during the news conference at the end of the consultations, the finance minister confirmed that a resolution has been reached regarding this matter of extraordinary expenditures to be incurred on account of activities connected with NAP. The resolution, it appears from the minister’s remarks, includes hiking next year’s fiscal deficit target by 0.3pc of GDP from the original target.
But this yields only Rs76bn as per my calculations, going by the GDP figures given on the State Bank website. Given that the finance minister gave the figure of Rs140bn at the same news conference as the quantum of funds required to meet these expenditures, it still remains unclear how the balance is going to be met, if it hasn’t already been met from other sources within the budget. Perhaps the fund agreed to hike the deficit target while asking the government to find the room for the remaining amount from within its budgetary resources.
In the middle of all this, a news item ran in a leading financial daily in mid-April about a “special development package” for the army specifically for purchase of equipment, particularly four Russian attack helicopters, totalling $750 million. That comes to almost Rs76bn, depending on the exchange rate. A summary from the defence ministry had already been moved to the finance ministry seeking release of these funds. Is there a connection here? Is this extraordinary expenditure, which is being billed as required for NAP, really needed for procurement of hardware?
This has been an intriguing affair to follow for a couple of reasons. For one, very little is known about the expenditures racked up under the various military operations that have been conducted within the country since 2009. All of these have been extraordinary expenses considering they are not part of the peacetime defence budget that is typically reported in budget documents. For another, the government has been quite willing to discuss this figure in public, but very shy about furnishing any details about it. What is the breakdown of how these funds will be spent? Who will have oversight? Will they be simply handed over to the armed forces, or will a portion be spent by the government itself?
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, May 14th, 2015
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