Finance Minister Muhammad Aurangzeb announced on June 12, 2025, a 20% hike in Pakistan’s defence budget for fiscal year 2025-26, raising it from 2.55 trillion rupees (approximately US $9 billion) last month after its armed clashes with India, amid its fragile economy and an IMF programme totalling $7 billion.
Fiscal Trade-offs: Subsidies and Spending Cuts
In order to accommodate its plan for increasing defense expenditure, India reduced federal spending by 7 percent between 2014-15 from 17.57 trillion rupees down to 16.35 trillion rupees by cutting subsidies and other departmental expenditures, according to sources like Wikipedia and Reuter’s, among others (http://en.wikipedia.org/201212/reuters/201212/m.economictimes/201212).
Interest payments on domestic debt also decreased due to central bank rate cuts–from 22 percent down to 11 percent–creating fiscal space for military expenditure. abcnews.go.com, reuters.com and ndtv.com all report this decline as well.
Tax Revenue Push and Budget Reforms
The government aims to achieve a 14-18% rise in revenues through broadening the tax base by including agriculture, real estate and retail–sectors which had previously been under-taxed–while also cutting customs duties to encourage industrial expansion (source Reuters.com).
This falls in line with IMF-brokered reform efforts aimed at cutting the fiscal deficit from 5.9 to 3.9 percent of GDP, according to sources like Wikipedia and Reuter’s.com
Foreign Borrowing & Strategic Support Its Pakistan continues to rely on substantial IMF loans under its current programme. To fund its military ambitions, Pakistan is also tapping Chinese support: an order for 40 J-35A stealth jets, missile defense systems and related platforms is underway reportedly being funded via deferred payments and credit lines (sources include aljazeera.com/in/indiatodayinin and ft.com for details).
Domestic Opposition and Strategic Priorities
With approval for the budget set for June, opposition parties and analysts have expressed serious reservations over allocating spending towards military expansion at the expense of education, health and climate resilience spending.
Lawmakers from Pakistan Muslim League and PPP argue the defence surge is a proportional response to India’s airstrikes against Pakistani installations during Operation Sindoor in May (indiatoday.in +3; arabnews.com +3; economictimes +3)
Economic Outlook Amid Shifting Spending Pakistan’s defence outlays now account for 14.5 percent of federal budget spending and 2-2.5 percent of GDP, but analysts warn that realizing the ambitious 4.2 percent GDP growth target may prove challenging given structural weaknesses in agriculture and manufacturing. Reuters.com/+1 for details ft.com +1
Pakistan continues to grapple with debt burdens; public debt stands at approximately 66% of GDP with large interest service obligations.
Implications and Risks Ahead Pakistan’s defense expansion underscores its ongoing strategic rivalry with India, even though its military budget remains approximately one-ninth of India’s estimated $80 billion figure.
Experts warn of an increasing military spending burdening the economy without transparent procurement and effective budgeting processes, prompting critics to call for greater public oversight as well as national debate about prioritizing long-term socioeconomic resilience over short-term security needs.
What to Watch Keep an eye out for in June during Parliamentary debate and approval proceedings.
Tax Revenue Performance–Will Revenue Goals Be Met?
Progress of military procurements (such as J-35A jets ) and financing deals
Impact on Social Sector and Public Services in Light of Budget Cuts
Conformance to IMF compliance requirements and fiscal discipline under the current program
Pakistan’s aggressive defence expansion against a backdrop of limited fiscal space highlights the difficulty inherent in striking an equilibrium between national security and socio-economic development. How effectively Islamabad navigates these competing priorities may determine its stability and growth over the coming year.