``Pakistan currently faces more threats from within than without,'' Karamat was quoted as saying by the Muslim newspaper today.

Economy should take precedent over every other issue, he said, adding ``Pakistan is threatened by economic instability rather than defence oriented dangers''. Sounding a note of caution, Karamat said, ``We must learn from other economies of the region''.

He, however, ruled out any possibility of cuts in the defence budget or downsizing of the Army saying, ``Unfortunately, security environment of the region does not permit Pakistan to lower its defence expenditure''.

Drawing a parallel with India, Karamat said India was spending nearly four per cent of its GDP on defence against Pakistan's five per cent, yet there could be no comparison between the two countries as far asmilitary balance was concerned because New Delhi enjoyed a huge economic base.

He said Pakistan has to address the problems of inflation, balance of payments and allied ills.