Pakistan unveils 'relief budget'

The government is to spend 50bn rupees to rebuild quake-hit areas

Pakistan's government has pledged to pump billions of rupees into spending on development and food subsidies.

The government has earmarked a record 1.3 trillion rupees ($21.7bn; £16.9bn) for public spending in the coming year.

Its priorities include improving sanitation, social services and infrastructure.

About 50bn rupees ($831m) will be spent on rebuilding areas devastated by last October's earthquake, in which about 80,000 people died.

Focus on the poor

"The people of Pakistan have the foremost right on Pakistan's resources," said Omar Ayub Khan, Minister of State for Finance, as he unveiled his plans for the fiscal year to June 2007.

"The budget I am going to present is a budget for the poor people of Pakistan. It is a budget of relief," he told the National Assembly.

Under the plans, the government will raise development spending by 52% to 415bn rupees.

After announcing so much relief and tax cuts, they could face pressure on the revenue generation side Asif Qureshi, analyst

The government will increase subsidies on basic foods - including 2.5bn rupees for lentil imports - to ease inflation pressures for consumers.

Analysts and trade groups welcomed the budget as a combination of growth and relief measures.

"The budget is a good one and it shows the good intentions of the government to further boost and improve the economy," said Akbar Abdullah, vice president of the Federation of Pakistan Chambers of Commerce and Industry.

Plans rapped

However, critics were unhappy that a 20% slice of the budget had been earmarked for defence spending.

Mr Khan said defence spending would rise to 250bn from 223bn, but declined to give a breakdown of expenditure for security reasons - a move long attacked by his opponents who are demanding more information about the sector.

Critics also warned that plans to impose a 2% tax on real estate purchases would not be enough to offset increased spending, as the government claimed.

"After announcing so much relief and tax cuts, they could face pressure on the revenue generation side," Asif Qureshi, head of research head at Invisor Securities, warned.

Looking ahead, Mr Khan said he expected economic growth to slow to 6.6% during the current financial year, after growth of 8.6% last year - the fastest pace for the past 20 years.

The budget would leave the fiscal deficit unchanged at 4.2% of gross domestic product.