Pakistan announced its federal budget for fiscal year 2025-26 on Tuesday, shrinking overall spending by 7% to 17.57 trillion rupees ($62 billion) but raising defence expenditure by a steep 20% following a deadly conflict with old enemy India last month. The government of Prime Minister Shehbaz Sharif presented a budget that allocated 2.55 trillion rupees ($9 billion) for defence spending in FY26, compared to 2.12 trillion in the fiscal year ending this month. It projected a fiscal deficit of 3.9% against a targeted 5.9% deficit in 2024-25. Inflation was projected at 7.5% and growth at 4.2%. The South Asian nation is seeking to kickstart growth while finding resources for the sharp hike in defence expenditure in the aftermath of the worst fighting with old foe India in nearly three decades. It also has to manage remaining within the discipline of its International Monetary Fund (IMF) programme and the uncertainty from new trade tariffs being imposed by the United States, its biggest export market. Economists were expecting an increase of around 20% in the defence budget, likely offset by cuts in development spending. The military clash between nuclear-armed India and Pakistan was sparked by an April attack by Islamist assailants who targeted Hindu tourists in Indian Kashmir, killing 26 men. New Delhi blamed the attack on militants backed by Pakistan, a charge denied by Islamabad. The two sides used fighter jets, missiles, drones and artillery before agreeing to a ceasefire after four days of fighting, their worst in nearly three decades.Pakistan’s allocation of 2.12 trillion rupees ($7.45 billion) for defence in the outgoing fiscal year included $2 billion for equipment and other assets. An additional 563 billion rupees ($1.99 billion) was set aside for military pensions, which are not counted within the official defence budget.

Full report : Pakistan raises defence spending by 20% but cuts overall budget in 2025-26.