Making a policy statement in parliament, Gilani said, "As a measure of our tangible display to seek peace with our neighbours, we have decided to freeze, actually reduce, the defence budget when seen in the context of inflation and the rupee-dollar parity."

Without naming India, he added: "We hope to see a reciprocal gesture from our neighbour for the sake of peace and prosperity of the region."

The Pakistani premier, however, did not give a figure on the proposed reduction in the defence budget which was Rs 275 billion in 2007 and equal to nearly three per cent of the GDP.

Gilani's statement came in the backdrop of a major financial crisis faced by Pakistan. Rising global food and oil prices have fuelled double-digit inflation since Gilani's Pakistan People's Party-led coalition came to power in March.

Outlining the basic tenets of the country's security policy, Gilani said Pakistan's ‘defence is based on the strategy of minimum, essential and credible deterrence and that we shall not enter into any arms race".