Pakistan will sharply increase its defence spending by 20% for the 2025–26 fiscal year, following a recent military confrontation with India, while overall federal expenditure will be cut by 7% as the government seeks to balance military priorities with fiscal restraint under an International Monetary Fund (IMF) programme.
The new budget, unveiled on Tuesday by Prime Minister Shehbaz Sharif’s administration, allocates 2.55 trillion rupees ($9 billion) for defence, up from 2.12 trillion rupees the previous year. Including military pensions, total defence-related spending will reach 3.29 trillion rupees ($11.67 billion).
The decision comes just weeks after a deadly four-day conflict with India, described by Islamabad as the worst fighting between the nuclear-armed neighbours in nearly three decades. The April clash—triggered by a deadly attack on Hindu pilgrims in Indian-administered Kashmir—saw the deployment of jets, drones, artillery, and missiles. India has blamed Pakistan-backed militants for the assault, a claim Pakistan denies.
“This budget reflects our determination to strengthen our defences after defeating India in a conventional war,” Prime Minister Sharif said. “Now we must surpass them in the economic field.”
While defence spending surges, total federal expenditure is expected to decline to 17.57 trillion rupees ($62 billion), down 7% from the previous year. The government is targeting a fiscal deficit of 3.9% of GDP, down from 5.9%, with inflation forecast at 7.5% and growth projected at 4.2% for the year starting July 2025.
Finance Minister Muhammad Aurangzeb said the government aims to stimulate growth through economic reforms, including the privatisation of state-owned Pakistan International Airlines, a key requirement of the IMF. He added that the country’s economic revival plan focuses on boosting exports, increasing foreign currency reserves, and avoiding future balance of payments crises.
“In short, our budget strategy is to change the economy’s DNA by bringing basic structural changes,” Aurangzeb told parliament.
Despite a stabilising economy, Pakistan’s growth lags behind its regional peers. The country is expected to grow by just 2.7% in the current fiscal year, compared to South Asia’s average growth of 5.8% in 2024, with projections of 6.0% in 2025, according to the Asian Development Bank.
Pakistan’s increased defence budget follows a similar move by India, which has allocated $78.7 billion for defence in 2025–26, including $21 billion for new equipment. New Delhi has signalled further military spending hikes in response to regional tensions.
With geopolitical instability, rising US tariffs on Pakistani exports, and IMF-mandated fiscal reforms ahead, Pakistan faces a complex balancing act between bolstering national security and pursuing long-term economic resilience.
