By Mandana Ismail Abeywickrema

The Mahinda Rajapakse administration is once again set to present a war budget in parliament come November 6 with defence expenditure for the year 2009 shooting up to Rs. 177.1 billion.

The Appropriation Bill for the 2009 budget is to be presented to parliament on October 9 for its first reading. However, a fact that caught the interest of many, analysts and media alike last week was the increase in the defence expenditure for 2009.

Fund allocations for defence expenditure that stood at Rs. 166.4 billion in 2008 has been increased to Rs. 177.1 billion for 2009.

Since Rajapakse assumed office in 2005, the present administration has openly declared war on terrorism and has increased its defence allocations since 2007. So far it is the war that has been used, apart from the rising global prices of several commodities, by the government to shield itself from a possible public outcry against an economy that has nothing to offer the average Sri Lankan.

Defence expenditure

It has now been reported that according to the Finance Ministry's Appropriation Bill 2009, the bulk of funds allocated for defence expenditure is for the army, which stands at Rs. 78.3 billion for recurrent expenditure and Rs. 5.6 billion for capital spending.

The Defence Ministry is to receive Rs. 18.7 billion as capital expenditure and Rs. 158.4 billion as recurrent expenditure in 2009.

The navy has been allocated Rs. 22.6 billion for recurrent expenditure and Rs. 4.9 billion for capital spending.

The air force has been allocated Rs. 16 billion for recurrent expenditure and Rs. 4.5 billion for capital expenditure.

The police force has been allocated Rs. 32.8 billion for recurrent expenditure and Rs. 2.8 billion for capital spending.

The government, according to analysts has shown a clear lack of focus and overlooked the close link between the conflict and the economy.

Analysts state that it is important to understand that the economic policies of the government have a direct impact on the battlefront.

The fact is that the actual defence expenditure for next year would be far greater than that printed in black and white.

Significant difference

Since 2006, it has been observed that there has been a significant difference with regard to the estimated sum and the actual expenditure on defence.

In 2006, while the government initially budgeted a sum of Rs. 96 billion on defence expenditure the actual amount spent amounted to Rs.111 billion.

In 2007, the initial estimate of Rs. 139 billion for defence funding reached Rs. 156 billion by end November.

In 2008, the government allocated a sum of Rs. 166 billion, which is Rs. 456 million (US$ 4 million) per day on defence and public security, which is a huge amount for a lower middle-income country.

However, according to analysts, the figure of Rs. 456 million on expenditure for defence per day is an underestimation, as most military procurements are made on hire purchase (installment) basis and therefore the payments are spread over a number of years into the future, and come with accrued interest.

The cost of interest payments in the future years would also have to be factored in as most of the expenditure is going to be financed by domestic and external borrowings.

Significantly greater

Therefore, the compounded cost of defence expenditure would be significantly greater than that shown in the annual budget outlays, which applies to other public expenditure heads as well.  

It has also been noted on several occasions by leading economists as well as the donor community that the experiences of many countries have shown that higher military expenditure does not necessarily win wars, internal or external.

An example cited is that while the United States has spent over a trillion dollars on the Iraq war in the past five years there is yet no end in sight.

Since 2007, the government in its budget has allocated the most amount of funds for defence while key sectors like health and education have been allocated marginal amounts when compared with that set aside for defence.

In the 2008 budget, the government allocated Rs. 8,536 per person for defence, which is in stark contrast to the Rs. 2,974 per person allocated for health and Rs. 2,359 per person allocated for education.

Public expenditure for 2008

"It is also important to note that, according to the summary of estimated public expenditure for 2008 presented to parliament on November 7, out of the total public expenditure earmarked for 2008 (Rs. 1,516.3 billion), Rs. 515.6 billion is for recurrent expenditure (34.0%), Rs. 209.8 billion is for interest payments on public debt (13.8%), Rs. 417.6 billion is for capital expenditure (27.5%) and Rs. 373.3 billion is for public debt amortisation (repayment of capital of public debt) (24.6%).

Thus, almost 38.5% of the total public expenditure is earmarked for public debt repayments (both capital and interest)," Principal Researcher, Point Pedro Institute of Development, Dr. Muttukrishna Sarvanathan explained.

He explained that the defence allocation mentioned in the budget has not included the pensions and disability benefits of the armed forces personnel because pensions are paid by the Public Administration and Home Affairs Ministry and the disability benefits are paid by the Social Services and Welfare Ministry.

Pensions of armed forces personnel

It is important to note that while disability benefits add up to a relatively lesser amount, pensions of armed forces personnel make up a huge total.

Also, the total government revenue has not been sufficient to pay even the total recurrent expenditure of the government in the past 20 years, that is, the entire capital expenditure and part of the recurrent expenditure are financed by public borrowings domestically and externally.

"This entails greater debt servicing costs over a long period of time, which is not accounted for in the figures given because debt servicing (amortisation and interest) is included in the budgetary allocations of the Finance and Planning Ministry," Dr. Sarvanathan added.

However, there are other indirect costs that add up to the government's expenditure due to an increase in violence, loss of tourism earnings and local and foreign investment; loss of future earnings of dead and disabled combatants and civilians; high military expenditure diverts public money from more productive expenditure and social sectors; increasing military checkpoints/road blocks increase the transaction cost of businesses and lowers the productivity of ordinary civilians because of loss of time, fuel, etc; closure of the airport for three months at night-time has cost businesses (airlines, export trade, etc.) heavily, are some of the indirect costs incurred by the government.

Given the path adopted by the present administration, the country would undoubtedly be given another war budget while the masses would be expected to shoulder the heavy burdens of high prices and low income for yet another year.