Pakistan's 09/10 budget shows dependence on friends

By Sahar Ahmed and Augustine Anthony

ISLAMABAD (Reuters) - Fighting a Taliban insurgency, mired in recession and kept afloat by an IMF emergency loan, Pakistan announced on Saturday a budget for 2009/10 that underlined its dependence on foreign financial support.

Delivering the annual budget statement to the National Assembly, Minister of State for Finance Hina Rabbani Khar estimated that Pakistan had paid a price of about $35 billion for joining the U.S.-led war against terrorism in 2001.

The civilian government, which came to power 15 months ago to bring down the curtain on almost a decade of military rule under former army chief Pervez Musharraf, has sought international support to stabilise its economy, fight the insurgency and fund development needed to make it harder for militants to recruit.

"We are facing huge expenditures to get rid of militancy," said Khar, who served as a minister of state in the Musharraf years.

"Our armed forces are in the forefront in the war against terrorism and militancy. Our western border is facing the most uncertain situation," she said, referring to the Taliban insurgency rolling in from the border with Afghanistan.

U.S. officials, worried that their nuclear-armed Muslim ally could descend into chaos, have welcomed the army's offensive against militants in the Swat valley and adjoining areas northwest of Islamabad, which was launched in late April.

On Thursday, the U.S. House of Representatives approved tripling aid to about $1.5 billion a year for five years to help combat extremism through development. Pakistan is the biggest recipient of U.S. aid.

A $7.6 billion bail-out by the International Monetary Fund (IMF) saved Pakistan from a balance of payments crisis last November.