Pakistan hikes defence spending by 20% in budget amid tense relations with India

Islamabad: Pakistan on Tuesday increased its defence budget by 20 per cent, allocating PRs. 2,550 billion ($9 billion) for the fiscal year 2025-26, amid tensions with India.

Finance Minister Muhammad Aurangzeb presented the PRs. (Pakistani Rupees) 17,573 billion worth federal budget for the fiscal year 2025–26 in the National Assembly. He also presented the budget document as a finance bill in the National Assembly.

In his speech, the minister said that the government has “decided to allocate PRs. 2,550 for the defence of the country”.

He didn’t provide any further details about the defence spending as traditionally the defence budget is not discussed by the parliament.

Last year, the government allocated PRs. 2,122 billion for defence, reflecting a 14.98 per cent increase over PRs. 1,804 billion budgeted for the fiscal year 2023-24.

“This budget is being presented at a historic time when the nation showed unity [and] determination,” the minister said at the start while mentioning the recent Pak-India conflict.

Tensions between India and Pakistan escalated after the April 22 Pahalgam terror attack, with India carrying out precision strikes on terror infrastructure in Pakistan and Pakistan-occupied Kashmir on May 7.

The on-ground hostilities from the Indian and Pakistan sides that lasted for four days ended with an understanding of stopping the military actions following talks between the directors general of military operations of both sides on May 10.

The defence sector expenses are the second-biggest component of the annual expenditure after the debt payments. The government allocated PRs. 8,207 billion for debt servicing, which constitutes the single biggest expense.

The increase in the defence expenditure is expected to get the broad support of the lawmakers during the budget debate and voting on the finance bill.

Aurangzeb also announced a 4.2 per cent GDP growth target for the economy which is higher than the 2.7 per cent achieved in the current year ending on June 30.

He said that debt and interest servicing would cost PRs. 8,207 billion. Other key expenses include PRs. 971 billion for civil administration, PRs. 1,186 billion for subsidies, PRs. 1,055 billion for pensions and PRs. 1,000 billion for the Public Sector Development Programme.

He said that the target for inflation was 7.5 per cent and the fiscal deficit target was 3.9 per cent as the government also announced to contain the deficit and achieve a primary surplus.

The minister said that the government has set an ambitious tax collection target for the Federal Board of Revenue at PRs. 14,131 billion, an 8.95 per cent increase from last year’s goal.

Aurangzeb said that the main success of the government was that inflation was reduced to 4.7 per cent in the outgoing fiscal whereas it was 29.2 per cent two years ago, while the government achieved a current account surplus of $1.5 billion.

He said the forex reserves will touch $14 billion by the end of the year and remittances were expected to reach $38 billion.