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K J M Varma in Islamabad
Ahead of the forthcoming summit with India and under pressure from the International Monetary Fund and the World Bank, Pakistan's military regime created history on Monday by slashing its defence budget by Rs 200 crore [Rs 2 billion] and increasing development spending by 27.4 per cent.
Presenting the budget on radio and television, Finance Minister Shaukat Aziz proposed a cut of Rs 2 billion in defence spending as compared to last year.
The cut in real terms could be worth Rs 3.5 billion if the prevailing rate of inflation and the steep depreciation of the Pakistani rupee are added.
This is the first time in its short history that Pakistan has slashed its defence budget. Last year it was frozen at the previous year's level.
Aziz announced that Pakistan's defence expenditure for the next financial year would be Rs 131.637 billion, against last year's Rs 133.497 billion.
Last year the overall defence allocation, including pensions, was Rs 156 billion. The cut in this year's budget will bring down the total figure to Rs 154 billion.
This defence cut could amount to 5 per cent if the inflationary trends and depreciation of the Pakistan rupee are added. The current rate of inflation, according to the official economic survey published last weekend, is 4.7 per cent.
In addition, Pakistan's rupee has been drastically devalued and now trades at Rs 67 to a US dollar. At the same time last year the rupee traded at about Rs 50 to the dollar.
By slashing the budget, the government has taken everyone by surprise as it was officially indicated earlier that defence spending would be maintained at last year's level by incorporating inflationary trends as well as rupee depreciation.
While the government's move has been attributed in Islamabad to pressure from the IMF and the World Bank, a senior Pakistani journalist said it could be aimed at clearing the air for the summit between Pakistan's military ruler, General Pervez Musharraf, and Prime Minister Atal Bihari Vajpayee of India.
Another notable feature of the budget was the 27.4 per cent increase in development expenditure over last year.
PTI
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