Pakistan unveils defence spending hike, 4 pct deficit

ISLAMABAD: Pakistan’s government hiked defence spending and government employees’ salaries while also raising relief for the poor in an upbeat budget announcement that set a deficit of four per cent of GDP.

Abdul Hafeez Shaikh

Abdul Hafeez Shaikh

The budget for the fiscal year 2010 to 2011 starting July 1 comes as pressure mounts on Pakistan to open up a new front against Taliban militants in north-western tribal areas bordering Afghanistan.

It earmarks 442.2 billion rupees (US$5.2 billion) for defence, an 18 per cent rise on the 378 billion rupees (US$4.4 billion) in the fiscal year ending June 30.

“We are facing a situation in which our military, paramilitary forces, police and security forces are sacrificing their lives for this country,” Finance Minister Abdul Hafeez Shaikh told parliament.

“The security situation has not been totally brought under control in spite of the recent gains.” In

the last three years more than 3,400 people have been killed across Pakistan in bomb blast and suicide attacks blamed on Taliban militants.

The total size of the budget for the next year has been fixed at 3,259 billion rupees (US$38.3 billion), a 10 per cent rise, with a budget deficit of 685 billion rupees (US$8 billion), or four per cent of gross domestic product (GDP), Shaikh said.

The social development allocation is 766.5 billion rupees (US$9 billion), while the budget provides a 50 per cent pay rise for government employees, and tax relief for those on low incomes.

“People are at the heart and centre of this budget,” Shaikh said.

“The best relief package that a government can give to its people is to reduce inflation because it is detrimental to poor sections of the society,” he added, thumping his desk.

Shaikh said government policies had arrested inflation and brought economic stability.

“We are seeing the beginning of recovery. Inflation has been checked from a peak which had reached 25 per cent,” he said.

In April, the inflation rate was 13.3 per cent, Shaikh said earlier.

“In GDP a turn around is being seen, it has reached 4.1 per cent, our foreign currency reserves have reached US$16 billion, remittances have increased to US$8.5 billion,” Shaikh said.

“We have achieved some macro-stability, checked inflation and begun to impact the growth rate.”

However Shaikh admitted that government had not been successful in dealing with energy shortages and creating employment during the outgoing fiscal year, noting that Pakistan has sought help from the IMF.

Pakistan approached the International Monetary Fund in 2008 and has secured a US$11.3 billion standby loan in an effort to contain inflation and cope with a rapid depletion of reserves that were barely enough to cover nine weeks of import bills. — AFP

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