In a significant move following heightened military tensions with India in May, Pakistan on Tuesday increased its defence budget by 20 per cent for the fiscal year 2025–26. Finance Minister Muhammad Aurangzeb announced a defence outlay of PKR 2.55 trillion (approximately $9 billion), up from PKR 2.1 trillion the previous year.
The announcement came as part of Pakistan’s federal budget for 2025–26, which has a total outlay of PKR 17.573 trillion ($62 billion), reflecting a 6.9 per cent decrease from the previous year. The cut in overall government spending contrasts sharply with the increase in defence allocation, underscoring the country’s shifting fiscal priorities in the wake of Operation Sindoor, India’s recent anti-terror military action.
Aurangzeb referred to the current period as a “historic moment” for Pakistan, highlighting national unity in difficult times. “This budget is being presented at a historic time when the nation showed unity and determination,” he said, linking the budget’s defence focus to recent cross-border conflict.
The revised defence figures do not include military pensions, which are separately budgeted at PKR 563 billion ($1.99 billion). Last year, defence spending also included $2 billion earmarked for new equipment and strategic assets.
On the economic front, Pakistan has projected a growth rate of 4.2 per cent for 2025–26. This follows a modest expected growth of 2.7 per cent for the current fiscal year—below the previous target of 3.6 per cent and trailing behind the regional average. According to the Asian Development Bank, South Asia’s average growth stood at 5.8 per cent in 2024 and is expected to hit 6 per cent in 2025.
Aurangzeb also claimed a 100 per cent rise in the taxpayer base and announced an upcoming tariff reform package aimed at boosting exports. The budget aligns with ongoing IMF recommendations urging Pakistan to expand its tax net, including sectors like agriculture, retail, and real estate.
