Pakistan Increases Defence Budget Amid Economic Overhaul

Following a military skirmish with India, Pakistan plans a significant 20% increase in defence spending while reducing overall federal expenditure by 7%. The budget aims to boost economic growth and meet IMF demands, amidst challenges like U.S. tariff uncertainty and a lagging regional economy.

Pakistan is set to amplify its defence expenditure by 20%, post a military altercation with India last month. This decision comes as part of a broader fiscal strategy, despite an overall federal spending cut of 7% for the fiscal year 2025-26, bringing the budget to 17.57 trillion rupees ($62 billion).

Prime Minister Shehbaz Sharif's government earmarked 2.55 trillion rupees ($9 billion) for defence from July 2025 to June 2026, an increase from 2.12 trillion. A projected deficit of 3.9% of GDP contrasts with a previous target of 5.9% for 2024-25. Additionally, inflation is expected to be at 7.5%, with growth at 4.2%.

Amidst soaring tensions, Pakistan attributes recent economic strategies to both military achievements and IMF program adherence. The nation confronts U.S.-imposed tariffs, potentially threatening its export market. The defence budget, encompassing military pensions and equipment, totals 3.292 trillion Pakistani rupees ($11.67 billion).