Pakistan seeks US$4 bil. for budget deficit

The IMF facility is “insurance” if pledged assistance is delayed or does not arrive, Shaukat Tarin, finance adviser to the prime minister, told reporters in Islamabad Sunday. The budget gap for the year starting July 1 is estimated at 4.9 percent of gross domestic product, higher than the 4.6 percent goal set by the Washington-based lender as part of its US$7.6 billion bailout of South Asia's second-biggest economy.

International donors meeting in Tokyo in April pledged to provide Pakistan with US$5 billion to shore up the country's ailing finances and fight terrorism. The government's seven-week campaign against Taliban insurgents in the northwest Swat Valley has had an “extremely high cost” on the economy, Tarin said.

President Asif Ali Zardari moved troops into the North West Frontier Province in late April, aiming to purge the region of Islamic militants threatening the nation's political stability. The offensive has created more than 2 million war refugees and has had what Standard Chartered described as a “devastating impact” on the resource-rich region.

“Terrorist attacks have undermined Pakistan's macroeconomic stability and dampened growth prospects,” Junior Economics Minister Hina Rabbani Khar told parliament in Islamabad Saturday.

“The global financial crisis seeped into the economy causing substantial decline in exports and a visible decline in foreign direct investment.”

The government plans to double relief spending for people displaced by the recent military operations and to rebuild damaged roads, buildings and bridges, Khar said as she unveiled the government's 2009-2010 budget. Defense spending was higher than budgeted this fiscal year, Tarin said Sunday.

The nation's defense forces will be allocated 343 billion rupees (US$4.2 billion) next year, a 16 percent increase on the estimated 296 billion rupees provided in the previous 12 months, according to budget documents. Military personnel will also receive a pay bonus.

“Defense and debt servicing costs may exceed estimates, resulting in a cut in development spending,” said Asif Qureshi, head of research at Invisor Securities in Karachi.

“A lot of this budget will depend on external assistance being received in time because there are no real measures which will increase the tax base.”

Pakistan's economy has deteriorated over recent years as terrorist attacks in the major cities of Karachi, Lahore and Islamabad deter foreign investors and erode business confidence. Overseas direct investment plunged 14 percent in the 10 months ended April 30, to US$3.2 billion.

Anti-Taliban cleric Sarfaraz Naeemi, along with six other people, was killed in a suicide bombing at a mosque and religious school in Lahore on June 12. That came three days after an attack on the five-star Pearl Continental hotel in Peshawar left 16 dead, including two United Nations officials.

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