Militancy-hit Pakistan ups defense spending by 17 percent

ISLAMABAD (Reuters) - Pakistan will increase defense spending by 17 percent in the 2010/11 fiscal year as the U.S. ally intensifies its battle against Taliban insurgents operating from their enclaves on the border with Afghanistan.

Defense spending is set to rise to 442.2 billion rupees ($5.17 billion) for the 2010/11 fiscal year beginning on July 1, compared with 378.13 billion rupees allocated in 2009/10.

"I think security is our topmost issue," Finance Minister Abdul Hafeez Shaikh told parliament in his budget speech.

"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."

Pakistani forces have mounted a series of offensives in the volatile northwest over the past year, killing hundreds of militants and capturing many of their bases.

However, militants have retaliated with a wave of bomb and suicide attacks throughout the country, including its heartland, Punjab, killing hundreds of people.

More than 80 were killed last week in twin attacks on Ahmadis -- a minority religious group declared non-Muslim in Pakistan -- in Lahore, the capital of the country's biggest province of Punjab.

Pakistan raises its defense spending every year because of its historically uneasy relations with old rival India.

Relations between the nuclear-armed rivals, which have fought three full-scale wars since 1947, went into a freeze after Pakistan-based militants attacked the Indian city of Mumbai in 2008, killing 166 people.

CONSISTENCY IN SPENDING

However, security analysts say much of the increase in the defense budget would be spent on the fight against Islamist militants.

"As far as India is concerned, there is a consistency in their spending on the eastern front (with India)," said Talat Masood, a retired army general turned analyst.

"But primarily the increase in defense spending is meant to boost the counter-insurgency capability of the security forces."

Pakistan, a vital ally for the United States as it struggles to stabilize Afghanistan and end the global threat posed by al Qaeda and its allies, has been heavily burdened by the cost of battling Taliban insurgents along its Afghan border.

The United States has given Pakistan more than $15 billion in direct and military reimbursements since the September 11, 2001 attacks on the United States. About two-thirds of it is security related.

(Editing by Chris Allbritton and Myra MacDonald)