Pakistan’s newly unveiled federal budget for 2025-26 highlights a sharp increase in defence spending, with a 20% hike that pushes military allocations to PKR 2.55 trillion ($9 billion), excluding pensions. At the same time, the government has trimmed overall spending by 7%, raising concerns over Islamabad’s development priorities.
Defence allocation sees major rise
In the budget presented by Prime Minister Shehbaz Sharif’s administration, the total defence allocation – including PKR 742 billion ($2.63 billion) for military pensions – rises to PKR 3.292 trillion ($11.67 billion). The outlay also earmarks PKR 704 billion ($2.5 billion) for physical assets and military equipment. This increase follows a recent military clash with India, triggered by the April terror attack in Jammu and Kashmir’s Pahalgam that left 26 dead. India has accused Pakistan of backing the attackers.
Sharif stated Pakistan must aim to surpass India in the economic arena, underlining defence as a critical pillar of national strategy.
Spending cuts and IMF conditions
Despite the military boost, Pakistan has cut total government expenditure by 7% as it attempts to stabilise an economy burdened by nearly PKR 76,000 billion (approximately $270 billion) in debt accumulated in the first nine months of the current fiscal year.
The finance ministry, led by Muhammad Aurangzeb, presented a PKR 17.573 trillion ($62 billion) budget, with a growth target of 4.2% for the coming fiscal year. Inflation is expected to ease to 7.5%, while the fiscal deficit is forecast to reduce to 3.9% of GDP from the previous 5.9%.
Pakistan is following terms laid out by the International Monetary Fund (IMF), which recently disbursed $2.4 billion in aid. Islamabad has assured the IMF that the budget is being prepared in consultation with the Fund, and has reiterated its commitment to privatising Pakistan International Airlines.
Growth struggles amid regional competition
While Aurangzeb expressed optimism, actual economic growth for the current fiscal year is likely to fall short at 2.7%, compared to the 3.6% target. This figure lags significantly behind the regional average, with South Asia recording 5.8% growth in 2024 and projections of 6.0% for 2025, according to the Asian Development Bank.
Aurangzeb highlighted the need for structural economic reform, stating, “Our budget strategy is to change the economy’s DNA by bringing basic changes.” He emphasised boosting exports and foreign reserves to avert past balance-of-payments crises.
Experts remain cautious
Despite interest rate cuts aimed at reducing borrowing costs, economists caution that fiscal constraints and IMF-mandated reforms may limit investment. Many believe that without parallel structural reform and developmental focus, Pakistan’s aspirations of economic stability and competitiveness will remain constrained.