Pakistan unveiled a deficit national budget on Saturday, proposing an increase in defence expenditure to help fight Taliban militants while boosting agriculture and industrial output and reducing poverty.
The budget for fiscal 2009-2010 starting from July 1 comes amid increasing suicide attacks and other militant violence in the major towns and cities of the nuclear-armed South Asian country.
"We now face the prospect of incurring huge costs on account of counter-insurgency expenditures," state minister for finance Hina Rabbani Khar told parliament as she introduced the 35.85 billion dollar budget.
She said the government had fixed the defence budget at 343 billion rupees (4.24 billion dollars), an increase of 47 billion rupees (581 million dollars) for the next fiscal year.
She said that the government had a big challenge to deal with as millions were left homeless due to military operations against the Taliban.
"We have to meet the maintenance and rehabilitation costs of almost 2.5 million brothers, sisters and children displaced as a result of the insurgency," Khar said.
"The international community has pledged its support for this human cause. However, your government is fully conscious of its responsibility and has allocated 50 billion rupees," she said.
Pakistan has also increased the salaries of soldiers fighting militants in three northwestern districts and along the rugged border with Afghanistan from July 1, and rest of the troops would get increased salaries from January 2010, she said.
"Today, the nation stands behind our valiant armed forces. No amount of compensation is adequate enough to cover the risk to one's life.
"I hope this small gesture on the part of the government helps in building the morale of our jawans (soldiers) and officers in the war against terror," she said without giving the amount of money involved.
She said the "war on terror" had already cost Pakistan 35 billion dollars since 2001-2002 in economic costs.
The budget aimed for 3.3 percent economic growth, which fell as low as two percent this year.
The growth rate in the current year was the slowest since 1997. Last year it was 4.1 percent, officials said.
"We experienced huge inflation, 25 percent in October which has now decreased to 14 percent and will come down to single digit next fiscal year," Khar said.