June 22 - 28, 2009

This month, the government presented the national budget for the next fiscal year starting from July1 at a time when it was facing serious security challenges due to its frontline position in the United States-led war on terror. The country has increased its defense spending by 15.3 percent to Rs.342.9 billion in the next fiscal year, compared with Rs.296.07 billion allocated in the fiscal year of 2008/09. In her speech in the National Assembly last week, Minister of State for Finance Hina Rabbani Khar said that the country had incurred an economic cost of $35 billion in the war against terror and it was also spending heavy amounts to get rid of militancy. The country is unlikely to meet its budget deficit target with a weaker growth and continuous government's spending on the fight against Taliban insurgents, according to the local experts.

The country plans to meet the budget deficit from external resources, mainly 'Friends of Pakistan' and money coming for internally displaced persons (IDPs). Budget deficit at Rs722.5 billion is estimated to be about 24 per cent higher than the current year's estimate of Rs582 billion. As ratio of GDP, the budget deficit will slightly go up to 4.9 per cent against 4.3 per cent during the current year. The country is the biggest recipient of US aid.

Pakistan has asked the International Monetary Fund (IMF) for a $4 billion stand-by loan to finance the yawning budget gap in the year 2009-10 in case multilateral donors fail to release the pledged amount to Islamabad. The Advisor to Prime Minister on Finance, Shaukat Tarin, said that in case of any delay in receipts of pledges from Friends of Democratic Pakistan (FODP), the country has lined up commitment of $4 billion from the IMF. 'This facility is insurance, which can be used in case the assistance from the multilateral donors or friendly countries delayed or does not arrive,' Tarin told newsmen in the post-budget press conference. Last November, a $7.6 billion bail-out by IMF saved Pakistan from a balance of payments crisis. Under IMF scrutiny, the country has targeted an increase in its fiscal deficit to 4.9 percent of GDP for 2009/10, from 4.3 percent in 2008/09.

The US Senate Foreign Relations Committee Tuesday unanimously passed Enhanced Partnership with Pakistan Act that will authorize $1.5 billion a year for five years to the South Asian country, which is currently building a campaign to defeat Taliban commander Baitullah Mehsud in his South Waziristan stronghold. The key south Asian anti-terror ally of US has paid heavy costs in terms of human lives and economic losses, for its frontline role in war on terror.

The US Senate bill named for its authors, Democrat John Kerry and Republican Richard Lugar - puts a focus on economic development in nuclear armed Muslim country. The bill needs to be reconciled afterward with a version approved last week in the House of Representatives, which imposes more stringent conditions on the country to verify it is helping defeat Islamic extremism. Chairman Senator John Kerry stressed that it was timely that the US supported Pakistan's anti-militancy drive as well as help look after the displaced people of Malakand in NWFP.

"This is a critical moment for Pakistan," reported APP Kerry as saying. "Pakistan is taking a critical action against the militants and the displacement of millions of people from Swat and other north-western parts offer the US and Pakistan a moment to help relocate them. It is all the more important to get the money moving at this moment."

The suicide attacks in the major towns and cities of the nuclear-armed country has witnessed a phenomenal increase in last two months, as Pakistan army launched a full-fledged military operation against Taliban insurgents in the country's northwestern tribal and settled areas. The country has witnessed more than 25 terror attacks since the military campaign against insurgents began in the northwestern Swat Valley seven weeks ago.

Critics say that the country has already lost billions of dollars in US-led war on terror besides huge indirect losses to the economy. United States has spent ten times more in Iraq than it spent in Pakistan over the past seven years. Five-year long $7.5 billion aid plan cannot meet the costs in terms of economic losses and collateral damage the country would bear if it becomes real war theater in US-led war on Al-Qaeda. At least 4,000 people have lost their lives in terrorist attacks in the country in the past two years, according to the official sources. The country's economy is virtually under attack from militants, who are perpetrating devastating acts of terrorism aggravating the foreign investor's concerns.

Of the total defense allocation of Rs343 billion, over Rs341.62 billion will go under the head of military defense and Rs1.28 billion for defense administration. Over Rs115 billion has been allocated for salaries, allowances and other employee-related expenses as against the revised estimates of Rs99.15 billion in 2008-09. Rs92.21 billion has been set aside for operating expenses, a slight increase over the revised estimates of the 2008-09 budget. Rs107 billion has been allocated for physical assets as against the revised estimate of Rs88.31 billion in 2008-09 while Rs27 billion has been earmarked for civil works.

"The intensification of war on terror into settled areas, coupled with other domestic factors like political turmoil and an unstable law and order situation, acute energy shortages, supply shocks, augmented by external factors like worsening of international financial crisis feeding into shrinkage of external demand and uncertainty about global recession, tested the resilience of economic fundamentals, according to the official Economic Survey for outgoing year.

A military operation is currently underway against Islamist extremists in different areas of Malakand division in NWFP. The government has declared Malakand division a calamity-hit area and announced to write off all agricultural loans extended to farmers in the area. About 126,000 people are daily fleeing fighting in northwest Pakistan in one of the 'fastest major displacements' in recent years, according to the UN refugee agency. The cash-strapped country direly needs huge resources to undertake a three-step operation- relief, rehabilitation and reconstruction for the over two million IDPs who fled from conflict areas of Swat, Buner and Mangura in Malakand division. Presently, the government is preoccupied by the IDPs crisis and the relief operations.