KARACHI Pakistan's military government is set to freeze defense spending in its second budget due today, but even so analysts predict there will be little left over to tackle alarming growth in poverty.

Debt servicing and defense will eat away the lion's share of the budget, leaving little space for badly-needed development and poverty reduction programs, they said.

Military spending and interest payments on the government's whopping $38 billion in foreign debt accounted for 59 percent of the 696 billion rupee ($11 billion) budget for the current year to June.

The 2001-02 budget is expected to amount to more than 800 billion rupees thanks to an ambitious tax collection drive targeting 430 billion rupees in revenue. Defense spending is estimated to stay at about 140 billion rupees.

"Very few surprises are expected in the budget, which most likely will toe the lines dictated by the IMF. The government does not have the fiscal space to adopt any pro-growth strategies," first capital securities analyst Zubaida Mirza said.

Poverty soared from below 18 percent of Pakistan's 140 million people in 1998 to more than 32 percent in 1999, according to a recent report from the Asian Development Bank.

The International Monetary Fund (IMF) in November approved a $596 million standby package over 10 months, marking Pakistan's readmission into international financial circles after two years.

It was the first IMF assistance since 1998 when lending was suspended after the ousted government of former prime minister Nawaz Sharif failed to fulfil targets.

The IMF has said Pakistan would be eligible for a much larger poverty reduction and growth package if the arrangement is successful and its targets are met.

Under its commitments, the military government will try to cut the fiscal deficit to 5.2 percent of gross domestic product (GDP) in the current fiscal year, from 6.4 percent in 1999-2000.

Finance Minister Shaukat Aziz on Saturday said the government had succeeded in reducing fiscal deficit to 5.3 percent in the outgoing year which was "the lowest fiscal deficit in the last 18 years."

The government has also promised to boost foreign exchange reserves and stabilize the sliding rupee with tighter monetary policy, as well as broaden the tax base, improve transparency, and accelerate privatization and the restructuring of public enterprises.