Pakistan to Raise Defence Spending, Cut Overall Budget in 2025–26

Pakistan is set to unveil a trimmed federal budget today, projecting 17.6 trillion rupees ($62.45 billion) in total outlays — a 6.7% decrease from the previous year — while increasing defence spending by about 20%, according to media reports and analysts.

The budget comes in the wake of last month’s conflict with India, placing new demands on Pakistan’s military expenditure. Defence allocations in 2024–25 were 2.1 trillion rupees, and are expected to increase significantly, alongside 563 billion rupees already marked for military pensions.

Meanwhile, development spending is likely to face cuts, with the government targeting a 4.8% fiscal deficit, improved from the 5.9% goal this fiscal year. The country’s economic growth for 2025–26 is projected at 4.2%, up from 2.7% this year, but still below the regional average of 6.0%, per the Asian Development Bank.

The government will also have to navigate fiscal constraints under its $7 billion IMF programme, while facing uncertainty from new U.S. tariffs affecting key exports.

Key reform priorities include expanding the tax base, enforcing agriculture income tax, and cutting subsidies. With just 1.3% of Pakistan’s population paying income tax in 2024, the IMF has pressed for inclusion of agriculture, real estate, and retail sectors.

Finance Minister Muhammad Aurangzeb stated the government would avoid “boom and bust” cycles, aiming to protect recent economic stability. However, analysts like Ahmad Mobeen of S&P Global remain cautious, predicting the revenue targets will fall short without deeper structural reforms.

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