Pakistan to hike defense spending, cut overall budget for 2025–26

Pakistan is set to unveil its federal budget on Tuesday, projecting a 6.7% cut in total spending to 17.6 trillion rupees ($62.45 billion) for the 2025–26 fiscal year, while likely increasing defence expenditure by around 20% in the wake of last month’s conflict with India.

Officials expect a fiscal deficit of 4.8% of GDP, down from this year’s 5.9% target. Defence spending, currently at 2.1 trillion rupees ($7.45 billion), is expected to rise, mostly funded through cuts in development spending. 

An additional 563 billion rupees ($1.99 billion) for military pensions remains outside the official defence budget.

In comparison, India has raised its 2025–26 defence budget to $78.7 billion, with $21 billion set aside for equipment.

Pakistan’s economic growth for 2025–26 is projected at 4.2%, up from 2.7% this year, but still below regional averages. The government aims to maintain IMF compliance by expanding the tax base—particularly in agriculture and retail—and cutting subsidies. 

Just 1.3% of Pakistanis paid income tax in 2024, highlighting the scale of reform needed.

Finance Minister Muhammad Aurangzeb said the government is focused on sustaining macroeconomic stability and avoiding past “boom and bust” cycles.

However, analysts warn that IMF conditions and structural inefficiencies could hamper growth. S&P economist Ahmad Mobeen expects the revenue target to fall short due to poor implementation and lack of real tax reform.