Pakistan's Bold Budget: Balancing Defence Hikes Amid Economic Challenges

Pakistan announced its fiscal year 2025-26 budget, cutting overall spending but significantly increasing defense funds following tensions with India. The budget outlines a 3.9% fiscal deficit and aims for 4.2% economic growth. Adjustments are required to align with IMF rules and counter U.S. trade barriers.

On Tuesday, Pakistan unveiled its federal budget for the 2025-26 fiscal year, reducing total spending by 7% to 17.57 trillion rupees ($62 billion), yet increasing defense allocations by 20% amid recent tensions with India.

Prime Minister Shehbaz Sharif's government assigned 2.55 trillion rupees ($9 billion) for defense in FY26, up from 2.12 trillion in the current fiscal year. The budget anticipates a 3.9% fiscal deficit, better than the previous target of 5.9%, with projected inflation at 7.5% and growth at 4.2%.

Pursuing economic growth while handling increased defense costs after conflict with India, the nation faces challenges staying within IMF requirements and dealing with new U.S. trade tariffs. Despite a defense budget increase, Pakistan's growth estimates lag behind regional averages.