Introduction
Post Operation Sindoor the Pakistan Army is back at centre stage. This was clearly evident with the promotion of General Asim Munir to Field Marshal and was reinforced by the overtures made to its military leadership by the US and has now manifested by the increase in the defence budget on 10 June.
The hike in defence expenditure by 20% comes amid a cut in overall spending, which is shrinking by 7 % to $62 bn. The Pakistan Economic Survey 2025, released days before the budget, shows that the country’s total public debt has soared to a record PKR 76 trillion $269 billion. This figure includes PKR 51.5 trillion in domestic debt and PKR 24.5 trillion in external obligations. These figures are double those of four years ago.
The last few years have been turbulent for Pakistan’s economy. Foreign reserves fell to just under $3 billion in 2023, bringing the country to the brink of default though recently following IMF deals the reserves have increased to $11 billion. Similarly, the Pakistani rupee, which had dropped to PKR 303 in September 2023 against the US dollar, has now stabilised between PKR 280 and 282 per dollar.
The Budget
Pakistan’s Budget for the year 2025–26 claimed a 4.2 % GDP growth, PKR 14.3 trillion in revenue, and a fiscal deficit reduced to 3.9 %of GDP. The Finance Minister announced a PKR 200 billion in tariff cuts on raw materials, a digital-transactions levy to generate PKR 64 billion, and a token sub-1 % tax relief for salaried workers granting middle-class households a paltry few hundred rupees monthly. Yet, these headline figures mask a budget crafted to appease the powerful, not to drive much-needed growth by encouraging investments.
Expenditure patterns tell a similar story. Out of the PKR 17.57 trillion outlay, PKR 8.2 trillion or nearly half has been earmarked for interest payments, underlining the unsustainable debt load.
Pakistan’s debt-to-GDP ratio stands near 74%, with external debt service obligations for FY26 projected to exceed $24 billion. In such a scenario, domestic fiscal space shrinks, leaving little for infrastructure, health, or digital transformation the key drivers of long-term growth.
The Pakistan Finance Minister Muhammad Aurangzeb said the budget would drive economic growth in the coming fiscal year, saying Islamabad has steadied the economy, which looked at risk of defaulting on its debts as recently as 2023. Pakistan also projected a deficit of 3.9 % of GDP against the 5.9 % targeted for 2024-25. Inflation was projected at 7.5 %.
Defence Remains Privileged
For the coming year, Pakistan has allocated $9,04 as the defence budget which is 1.97 % of the GDP and $2.63 billion to military pensions, taking the entire defence budget to $11.67 billion accounting for nearly 3 % of GDP.
The new allocation is a 17% increase compared with the revised defence budget in 2024–25 and a 20% rise against the original allocation in that year. The Service wise breakdown sees the Army getting 45.9%, the Pakistan Air Force 20.4%, the Pakistan Navy getting 10.4% and the Inter Services Organisations which include the ISI getting 19.5%.
Further salaries of military personnel, are not revealed publicly and are under the General Public Services-Staff Salaries which is not included in the defence budget. Thus, the defence allocation reflects only operational, administrative, and development expenditures. In matters of salaries of defence personnel, even parliamentary oversight is limited. Budget committees are briefed in classified sessions and members often cannot question details freely.
The Cabinet, chaired by Prime Minister Shehbaz Sharif before the budget was tabled in parliament, had already approved a 10 % salary increase for government employees and a 7 % hike in pensions.
The massive hike in the defence budget, is in line with growing defence allocation in recent years. The military’s budget has nearly doubled in the past five years. In fiscal year 2020-21, the allocation stood at $4.53 billion.
This increase, alongside the slashing of 118 development projects worth PKR 1,000 billion in the Public Sector Development Programme (PSDP), diverts resources from critical investments in health, technology, and infrastructure. The budget’s heavy military allocation and PSDP squeeze illustrate the power the military wields reflecting a loss of developmental intent.
This increase places the defence sector as the second-largest component of Pakistan’s annual spending, behind only debt servicing. Defence and debt will continue to be the drivers of Pakistan’s economy. The defence allocation represents 14.5 % of the total federal outlay of $62 bn, while debt payments account for nearly 47 %, highlighting the extent to which both sectors dominate the financial landscape.
The Pakistan government itself admits the seriousness of this trend. “Excessive or poorly managed debt can pose serious vulnerabilities, such as rising interest burdens and can undermine long-term fiscal sustainability and economic security if left unaddressed,” is what its economic survey stated.
While defence spending is being raised, the social cost is increasingly difficult to ignore. According to recent data from the World Bank, nearly 45 % of Pakistan’s population now lives in poverty, and 16.5 % are classified as living in extreme poverty, following an upward revision of the international poverty line.
This year alone, 1.9 million more people fell into poverty, a trend attributed to economic stagnation, inflation, and reduced government support as money is not being spent on development.
On the other hand, Pakistan’s security apparatus and by extension, the ecosystem that enables terrorism is being supported by clever budgetary infusions including channeling international aid and loans under the guise of public development. The international institutes in a way are indirectly subsidising both conflict and militancy. This has both serious domestic and regional implications.
There is no doubt that without redirecting resources to health, education, infrastructure, and job creation, Pakistan will remain locked in a cycle of debt and underdevelopment. The fault line will only widen.
China a Trusted Friend
Alongside the budget announcement, Pakistan confirmed that it had been offered significant military hardware from China, its most trusted friend.
These offers include 40 fifth-generation J-35 stealth fighter jets, KJ-500 airborne early warning and control aircraft, and HQ-19 ballistic missile defence systems. The J-35 jets, developed by Shenyang Aircraft Corporation, were publicly showcased at the 2024 Zhuhai Airshow and would mark China’s first overseas sale of the fifth-generation aircraft.
The Pakistani government’s official social media post on 07 June described these offers as part of “several major diplomatic achievements,” which also included the deferment of $3.7 billion in debt by China.
Conclusion
Pakistan’s budgets have consistently failed to align with priorities like debt reduction, energy reliability, food security and development. Health and education continue to receive limited attention as allocations are not proportionate to the pressing needs of the population. No wonder the former Finance Minister Miftah Ismail commented that the, “Modernising our armed forces is essential. But the key is spending wisely.”
The focus area remains prioritising defence expenditure as they remain confident of continued loans and bailouts from friends and multi-lateral institutes such as the IMF and World Bank. Each lender offers leeway to Pakistan to divert funds towards the military. While IMF funds aren’t directly used for military spending, they stabilise Pakistan’s economy and allow the government to redirect domestic funds toward defence.
The Pakistan budget as before will continue to entrenched interests, and will never be a roadmap for Pakistan’s future. The increase comes at a time Pakistan’s economy remains fragile and fiscal space is constrained.
Though the budget reflects Pakistan’s obsession with prioritising its defence capabilities which includes terrorism to counter India but there also appears to be a sense of panic following the destruction inflicted during Operation Sindoor.
However, there is no doubt that this is an endorsement of their future path which will remain one of confrontation with India. Hence guns will always score over growth and development. This is evident in the budgetary figures which reflect a distress in the economy but instead of any structural reforms the continuing direction of the government remains focused on increasing defence expenditure.
ABOUT THE AUTHOR
Maj Gen VK Singh, VSM was commissioned into The Scinde Horse in Dec 1983. The officer has commanded an Independent Recce Sqn in the desert sector, and has the distinction of being the first Armoured Corps Officer to command an Assam Rifles Battalion in Counter Insurgency Operations in Manipur and Nagaland, as well as the first General Cadre Officer to command a Strategic Forces Brigade. He then commanded 12 Infantry Division (RAPID) in Western Sector. The General is a fourth generation army officer.
Major General Jagatbir Singh was commissioned into 18 Cavalry in December 1981. During his 38 years of service in the Army he has held various command, staff and instructional appointments and served in varied terrains in the country. He has served in a United Nations Peace Keeping Mission as a Military Observer in Iraq and Kuwait. He has been an instructor to Indian Military Academy and the Defence Services Staff College, Wellington. He is a prolific writer in defence & national security and adept at public speaking.
