The Pakistani government this week presented a 17.57 trillion rupee ($63.21 billion) budget for the fiscal year 2025-2026. The government has also laid out a modest 4.2 percent growth promise as part of next year’s financial plans. However, this growth promise seems ambitious considering that Pakistan missed last year’s growth promise, which barely reached 2.68 percent against the set target of 3.56 percent.
After a major military confrontation with India, Pakistan has substantially increased allocations for defense. Defense spending for the coming fiscal year has been raised to 2.55 trillion rupees, a 20 percent increase over the 2.12 trillion rupees allocated last year. Clearly, the specter of war with India heavily occupies the minds of Pakistan’s policy planners. It has prompted Pakistan to invest in countering India’s military advantage and to prepare for potential flashpoints with its neighbors.
In a noisy Parliament session on Tuesday, Finance Minister Muhammad Aurangzeb remarked that the budget was being presented at a “historic moment.” He was referring to the recent India-Pakistan military exchanges.
Aurangzeb stressed that Pakistan should ensure the country’s financial security in the same manner that national sovereignty was protected against India.
Similarly, Pakistan’s Prime Minister Shehbaz Sharif tried to convince lawmakers that the country needed to beat India in the economic sphere after beating it militarily last month. “After defeating India in a conventional war, now we have to surpass it in the economic field,” Sharif said in a statement.
Pakistani government officials seem to be framing the country’s economic resilience as an extension of national security. By doing this, the government aims to rally support behind its message that Pakistan’s defense cannot be compromised and that increasing the budget for security purposes is intended to deter India. The conversations aim to project strength domestically and vis-à-vis India. Moreover, this emphasizes Pakistan’s dual resolve, indicating that military readiness and economic survival are parallel battlegrounds that Pakistan needs to prepare for.
Last week, Pakistan’s government announced that China had offered it a defense package after the recent clashes with India, which included 40 J35-A stealth jets, KJ-500 airborne early warning and control aircraft, as well as HQ-19 ballistic missile defense systems.
The government has not yet announced when the newly discussed defense package will arrive in Pakistan or how it plans to fund it. However, Pakistan aims to quickly address any gaps that may have emerged during recent clashes with India.
The challenge for Pakistan lies in balancing the International Monetary Fund (IMF) mandated austerity, revenue targets, and fiscal consolidation with the public’s growing demand for relief amid increasing defense needs.
For instance, after debt servicing, which accounts for more than 45 percent of the total budget allocation, the defense budget remains the country’s second-largest expenditure. This underscores the urgency in Pakistan to prioritize military power despite economic difficulties.
Moreover, the new allocation pushes defense spending to around 1.97 percent of the country’s GDP. The hike in defense spending also means that its total share in federal expenditure has now increased to 14.51 percent, which is the highest in recent years. To make more space for similar allocations at the federal level, the government may try to amend the National Finance Commission Award (NFC) in the coming weeks and months. The NFC Award outlines how revenue is distributed between the federal government and provincial governments.
In general, the increase in defense spending for the upcoming fiscal year contrasts with the drop in national spending on health and education in terms of GDP at the federal level. However, it is pertinent to note that after the passage of the 18th constitutional amendment in Pakistan, control over resources, health, and educational sectors has been significantly transferred to the provinces. This essentially means that provinces now have more autonomy and resources to spend in these sectors without relying on the federal government.
While prioritizing security, Pakistan’s budget underscores a critical push to stabilize the economy. However, this remains a difficult but necessary path that will require political consensus, sustained reforms, and global support to deliver a much-needed boost to Pakistan’s economy.
This will not be an easy task, as many power groups within the coalition government and outside will try to push back against the proposed fiscal measures. The finance minister has already warned that the government would be compelled to impose up to 500 billion rupees in taxes if parliamentarians failed to approve the sweeping enforcement measures proposed in the 2025-26 budget.
“I now request my colleagues in both houses of Parliament to get the enabling clauses for enforcement measures passed, otherwise we would have to take 400-500 billion rupees [in] additional tax measures,” the usually soft-spoken minister cautioned.
It will be very interesting to see how Pakistan’s proposed budget changes in the coming days and weeks, and which challenges will be bridged with greater urgency.