In a decisive move reflecting heightened regional tensions, Pakistan’s federal budget for the fiscal year 2025–26, unveiled on June 10, 2025, features a substantial 20 percent increase in defence spending. Finance Minister Muhammad Aurangzeb presented the 17.57 trillion-rupee ($62 billion) budget in the National Assembly, allocating 2.55 trillion rupees ($9 billion) to national defence—up from 2.12 trillion rupees in the previous year.
This rise comes despite an overall 7 percent reduction in government expenditures, alongside aggressive cuts to public spending on health, environment, and other civilian sectors. The defence budget, already the second largest expenditure line after debt servicing, now represents roughly 15 percent of the total federal outlay and about 2 percent of Pakistan’s GDP.
Officials attribute the boosted allocation to the volatile security environment following last month’s intense exchanges of missiles and drones with India triggered by the April 22 Pahalgam terrorist attack and subsequent Indian airstrikes in Pakistan. The deployment of weapons systems, including reported plans for 40 Chinese J‑35 stealth fighters and advanced early warning and missile defence capabilities, further underscores Islamabad’s urgency to modernize its military.
In his budget speech, Aurangzeb emphasized the necessity of a robust defence posture: “This budget is being presented at a historic time when the nation showed unity [and] determination”. Prime Minister Shehbaz Sharif echoed this sentiment during Cabinet discussions, stressing that after demonstrating military parity with India, Pakistan must now excel economically.
Funding for this strategic military uplift is being sourced through ambitious fiscal adjustments. Debt servicing, consuming the largest share at about 8.2 trillion rupees, remains unchanged. The government is simultaneously pursuing revenue-enhancing initiatives—including taxing agriculture, real estate, and retail—while curbing subsidies and policy lending, and relying on reduced interest payments following a central bank rate cut from 22 percent to 11 percent. These measures are part of a wider structural reform agenda aimed at satisfying a $7 billion International Monetary Fund programme.
The budget also sets an ambitious GDP growth target of 4.2 percent for FY 2025–26, up from the previous year’s estimated 2.7 percent. However, analysts remain skeptical. They point to weakened agricultural output and a contraction in large-scale manufacturing—driven in part by high inflation and rising power costs—as major obstacles to achieving this growth target.
Critics have raised concerns that prioritizing defence in a cash-strapped environment may exacerbate social inequalities and sideline essential public services. Pakistan allocates less than 1 percent of GDP to health, far below the World Health Organization’s benchmark of 6 percent, while climate resilience and environmental budgets have also been slashed.
Still, this budget reflects the country’s shooting-from-the-hip approach to defence readiness amid geopolitical uncertainty. Observers note a balancing act between securing defence imperatives and committing to IMF-mandated fiscal discipline—a challenge Pakistan has faced for decades. The outcome of this strategic gamble, in light of historical IMF shortcomings and tax collection frailties, remains to be seen.
