ISLAMABAD :Fighting a Taliban insurgency, mired in recession and kept afloat by an IMF emergency loan, Government announced on Saturday a budget for 2009/10 that underlined its dependence on foreign financial support.
Delivering the annual budget statement to the National Assembly, Minister of State for Finance Hina Rabbani Khar estimated that Pakistan had paid a price of about $35 billion for joining the US-led war against terrorism in 2001.
The civilian government, which came to power 15 months ago to bring down the curtain on almost a decade of military rule under former army chief Pervez Musharraf, has sought international support to stabilise its economy, fight the insurgency and fund development needed to make it harder for militants to recruit.
"We are facing huge expenditures to get rid of militancy," said Khar, who served as a minister of state in the Musharraf years.
"Our armed forces are in the forefront in the war against terrorism and militancy. Our western border is facing the most uncertain situation," she said, referring to the Taliban insurgency rolling in from the border with Afghanistan.
US officials, worried that their nuclear-armed Muslim ally could descend into chaos, have welcomed the army's offensive against militants in the Swat valley and adjoining areas northwest of Islamabad, which was launched in late April.
On Thursday, the US House of Representatives approved tripling aid to about $1.5 billion a year for five years to help combat extremism through development. Pakistan is the biggest recipient of US aid.
A $7.6 billion bail-out by the International Monetary Fund (IMF) saved Pakistan from a balance of payments crisis last November.
The budget factored in 178 billion rupees of aid from "Friends of Pakistan" international donors who met in Tokyo in April, and the government is still seeking money from friendly governments and international lenders.
TRYING TO BEAT RECESSION
The balance of payments crisis, an oil price shock and economic mismanagement contributed to a sharp slowdown in Pakistan's previously fast-growing economy in the past year.
Insecurity, political uncertainty, economic difficulties, and power shortages combined to deter investment, and the textile industry, Pakistan's main export sector, has been hit hard.
Economic growth slid to 2 percent in the 2008/09 fiscal year ending on June 30, tantamount to recession for a country with annual population growth of more than 2 percent and with more than a third of its 170 million people living in poverty.
The budget forecast gross domestic product (GDP) growth recovering to 3.3 percent in 2009/10, and inflation easing to 9.5 percent after averaging 21 percent for the year just ending.
Development spending was increased more than 17 percent to 646 billion rupees, while defence spending was increased 15.3 percent to 342.9 billion rupees, according to a "Budget at a Glance" document, portions of which were obtained by Reuters.
Under IMF scrutiny, Pakistan has targeted an increase in its fiscal deficit to 4.9 percent of GDP for 2009/10, from 4.3 percent in 2008/09.
Pakistan expects to cover almost 265 billion rupees of the 722.5 billion rupee deficit with external borrowing, and the rest from domestic borrowing.
"The major risk in this budget is foreign funding. We have heavy reliance on that, but if that is delayed or does not go through, there is no fall-back solution," said Ashfaque Hasan Khan, Dean of the National University of Science and Technology.
"That would mean that the government will have to cut down development expenditure, which will be a big problem and difficult politically," said Khan, a former senior official in the Finance Ministry.
Other analysts echoed that concern.
Sakib Sherani, a economist with an international bank and member of the government's Economic Advisory Council, also noted the risk that rising oil prices posed to the energy-deficit country, along with the threat from the insurgency.
"The security situation will also have a bearing on the final outcome with regards to the deficit," Sherani said.
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