Arms deal spending may face cutbacks

Financing the multi billion-rand arms deal would have no effect on the projected 2002/03 budget deficit of 2,6 percent, but the department of defence might have toreassess whether it could afford all tranches of the deal given its budgets for the next three years, Maria Ramos,the director-general of the treasury, said yesterday.

The cabinet approved the deal at a R30 billion, or $4,8 billion, contract price (1999 prices at an exchange rate of R6,25 to the dollar), of which R22,1 billion consisted of foreign supplies and R3,2 billion of local supplies. In the February 2001 budget, the total cash flow cost of the programme was put at R30,3 billion because of the depreciation of the rand and inflation-related cost increases.

Expenditure on the deal was expected to peak at R5,8 billion in 2003/04, or about 2 percent of the overall budget. By this time the full cost of the programme was expected to be R43,8 billion over 12 years. Ramos said that, when the cabinet considered the next budget, it would look at the figures again and if the department of defence needed more than was available in its budget to take out the second and third tranches of the deal covering 12 Hawk 100 trainers and 19 Gripen single fighter aircraft, it would have to decide what to give up.

It could cancel the second and third tranches by April 2002 and April 2004, although the department of defence had indicated that this could seriously affect the training of pilots and the full operational capacity of the fighters.

Business Report