The army wants an extra $521 million on top of the budgeted $5.17 billion for 2010-11 to meet the country's security needs.

But the finance minister reportedly suggested a much smaller increase, predicting such a large boost to spending would seriously jeopardize the country's economic development.

In July the government approved a defense spending increase of 17 percent in the face of intensified battles with Taliban insurgents operating from remote areas near Afghanistan.

"I think security is our top-most issue," Finance Minister Abdul Hafeez Shaikh told Parliament in his budget speech at the time. "We are facing a situation in which our armed forces, paramilitary forces and security forces are laying down their lives. ... They should know from this house that we all stand by them."

However, Shaikh is resisting the military's current wish to boost its budget because of the "prevailing grave economic situation" and difficulties in bridging the ever-widening "gap between national income and expenditure." Shaikh told a meeting of the government's economic committee, chaired by Prime Minister Yousuf Raza Gilani, that shrinking revenues and difficulties with introducing a Reformed General Sales Tax have to be addressed quickly.

The RGST must be up and running if the International Monetary Fund is to release to Pakistan the much-needed fourth tranche of its $11 billion standby credit.

The money will help Pakistan reform its energy sector and improve the delivery of electricity and water to consumers and businesses. In turn, that would increase foreign investment in power generation because of better and more stable returns.

Shaikh is believed to have met the head of the army, Gen. Ashfaq Parvez Kayani, in Rawalpindi last week and has offered an increase of around 1 percent.

Pakistan has traditionally based it military budget on defensive measures against a perceived threat from India, which along with Pakistan was created as an independent state when the British left the subcontinent in 1947.

Around half the budget goes to the 480,000-strong army, of which just under 150,000 is deployed along the border with India. Pakistan also has 10,000 troops on U.N. peacekeeping duties.

Pakistan's military has been replacing its aging aircraft with General Dynamics F-16 fighter jets and also versions of the Chinese-designed JF-17 Thunder jet fighter.

In June, three new F-16s were flown from the United States and handed over to Pakistan's air force.

Under the deal with the Chinese, Pakistan is getting 250 of the JF-17 aircraft, developed by Pakistan Aeronautical Complex and Chengdu Aircraft in China. Deliveries began in 2009 and the aircraft will replace Pakistan's Nanchang A-5, Chengdu F-7P / PG and Dassault Mirage III / V fighters.

While Pakistan ponders a defense increase, Foreign Minister Makhdoom Shah Mahmood Qureshi told an international economic gathering in Istanbul that terrorism, drug-trafficking, transnational organized crime and natural disasters were undermining efforts for economic progress in the region.

"This calls for innovative approaches and focused attention on socioeconomic development of the region," he said during the 11th Economic Cooperation Organization head of states summit meeting.

Global peace, stability and prosperity are indivisible and "the global effects of economic and financial turmoil are not far behind us."

Qureshi also reiterated the goal to continually lower trade barriers and by 2015 establish a free-trade area in the eastern Asian region.

ECO was set up in 1985 by Iran, Pakistan and Turkey to promote economic, technical and cultural cooperation. It was expanded in 1992 to include Afghanistan, Azerbaijan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

The previous ECO summit was held in Tehran in March 2009.

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