The 805-billion rupee (13.8 billion dollar) budget for year to June 2004 will see a record 31 percent increase in public sector development spending to 160 billion rupees, minister Shaukat Aziz said.

"This is an unprecedented increase in the development budget in a single year," he said above a din of desk-thumping, stomping and angry chants from opposition MPs waging a campaign against President Pervez Musharraf's self-appointed rule.

"This will create more jobs and help eradicate poverty. We want to come out of debt trap we want to end the culture of begging bowl."

Higher than expected growth, lower inflation and a reduced budget deficit for the current financial year plus lower debt pressure would help fund the extra spending.

Positive macroeconomic data for the first 11 months of the current year to June, released ahead of the budget, showed growth was 0.6 percent higher than the targeted 4.5 percent. Inflation of 3.3 percent inflation was below the estimate of 4.0 percent and the budget deficit was reduced from 5.3 percent of GDP to 4.6 percent.

"This is the best we could do in six and half months," Prime Minister Zafarullah Jamali told reporters afterwards.

"People should appreciate this. There is no increase in taxes."

Increases in spending on education, health, and agriculture were also flagged but no amounts were specified. Education last year won only a paltry 2.2 percent of the total budget and economists have urged the government to at least double the figure in the new budget.

Debt servicing, which has swallowed most of the budget in recent years, was reduced to 36 percent of the budget.

"The reduction in debt servicing will enable us to allocate to activate our productivity to help lessen poverty in the country," Aziz said.

"We could provide more funds to education, health, and social welfare."

Foreign debt had been cut by three billion dollars to 35 billion dollars, Aziz said.

"This is a 15 percent reduction in our foreign debt which is commendable."

Debt servicing has also been helped by the rescheduling of 12.5 billion dollars as a reward from the United States and multilateral lenders for Pakistan's crucial assistance in ousting Afghanistan's Taliban regime and capturing al-Qaeda leaders and followers.

Direct defence spending remained steady at 160 billion rupees.

"For the first time in the this country the defence and development budgets are equal," Jamali said.

"It provides reasonable amount for defence of the country."

He denied the defence freeze was made under pressure from donors or as part of confidence building measures in the diplomatic thaw with India.

The government projected revenue collection of 503 billion rupees, but assured there would be no new taxes.

Instead there were tax concessions including benefits for foreign investors and abolition of withholding and wealth taxes. Company taxes were reduced by 2.0 percent.

Several housing sector incentives were outlined, including a 25 percent reduction in excise duty on cement and a 10 percent cut in excise duty on cables and wires.

"This will give a boost to the housing sector to which a large number of anciliary industries are linked," Aziz said.

Sweeteners for civil servants included 15 percent rise in salaries and pensions, as well as home loan assistance.

Islamist MP Hafiz Hussain Ahmed criticised the budget for lack of poverty-fighting initiatives.

"The people of Pakistan will not get any relief and poverty will increase," Ahmed said.

WAR.WIRE