Behind the scenes military spending -
dilemmas
for managing public expenditure
Reported levels of military expenditure in state budgets often reveal
only a part of the story. In many countries military expenses are disguised
within non-defence budgets or do not appear in the budget at all. Such ‘off-budget’ military
expenditure reduces the credibility of the overall budgeting process
and raises difficult dilemmas for achieving an optimal allocation of
public resources. Without knowing how many resources the armed forces
absorb, it is difficult to get a realistic sense of how much it costs
to defend a country or to ensure effective civil regulation of the
armed forces by government and civil society.
When scrutinised by aid donors, many developing countries are penalised
in different ways because of concerns about the level of their military
expenditures. If excessive pressures (such as aid conditionalities) are
applied to either reduce military spending or to make it transparent
within the budget, these may create an incentive for military spending
to be hidden through ‘creative accounting’ techniques.
Military spending is often hidden under uncontroversial budget headings
within non-defence portions of the national budget:
- contingency funds are used for activities such as paying military
debts or repairing military hardware;
- military budgets are supplemented with funds diverted from unspent
budgets from the social sectors; and
- military activities are portrayed as ‘peace operations’ or ‘public
security’ activities and get paid for by non-military departments
such as the police or social welfare.
Funds are also generated from various other sources. In Indonesia,
the military’s primary source of income is its involvement in the formal
business sector where its activities enjoy charitable status and are
exempt from taxes. Income from the sale of natural resources (both legal
and illegal), foreign assistance and sometimes criminal activities such
as fuel smuggling, drug or arms trafficking, sustain defence activities.
Illicit involvement in diamond mining in Sierra Leone has in the past
provided income to groups within the army.
Indiscipline in the budgetary process enables governments to raid funds
designated for other purposes, including social spending. Governments
may then need to borrow heavily to meet deficits caused by diverting
funds to the military. By merely imposing conditions and compelling governments
to reduce military spending, donors fail to address the inequalities
in political power and the institutional weaknesses that are so often
the root causes of unsustainable military expenditure. Many governments – Cambodia
for example – find it difficult to avoid high off-budget military
spending due to the integral role played by powerful military establishments
in the political system. Persistent war and security problems such as
Uganda’s experience with the Lord’s Resistance Army enable
governments to invoke measures of ‘urgency’ and ‘exceptionality’ to
justify resorting to non-transparent budgetary processes.
The central issue for donors should not be about improving data collection
on actual expenditure, but rather to help countries address the underlying
governance problems that reduce transparency and accountability within
the defence sector. As the issue of off-budget military expenditure is
often primarily political – its resolution ultimately requires
stronger democratic governance of the defence sector, including the activities
of both civil and military officials. Such changes will be long term
and slow in nature. However, international and bi-lateral donors may
assist the process by working with recipient countries to incorporate
the defence sector fully into the government-wide budgeting process.
This would help to make budget allocation decisions about different aspects
of the defence sector more transparent to Parliament, finance ministries,
auditors, individuals and the press: the starting point for government
and public debates about how much defence spending is appropriate in
a given country.
Bilateral donors can provide incentives for governments and militaries
to take this step by agreeing not to demand rapid reductions in military
spending, particularly when countries face serious security problems.
It is also important that the World Bank and IMF at long last incorporate
the defence sector (and other parts of the security sector) into public
expenditure work and the poverty reduction strategy process.
Dylan Hendrickson
Conflict, Security and Development Group
Kings College London
dylan.hendrickson@kcl.ac.uk
Nicole Ball
Center for International Policy
Washington, DC
njball3@cs.com
See also
‘Off-Budget Military Expenditure and Revenue: Issues and Policy
Perspectives for Donors’ by Dylan Hendrickson and Nicole Ball, CSDG Occasional
Papers #1, Jan 2002, Kings College London.
http://csdg.kcl.ac.uk/Publications/assets/PDF%20files/OP1_Off-Budget%20Military%
20Expenditure.pdf
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