Pakistan preferred to put defence budget its foremost priority over the country’s growth following a military clash with India after Operation Sindoor, which New Delhi carried out against terrorist bases. Pakistan’s Finance Minister, Muhammad Aurangzeb, announced a 20% hike in defense spending as he unveiled the federal budget for the fiscal year 2025-26, which stands at PKR 17.573 trillion , down 6.9% from the previous year.
Economists were quick to criticise the Budget of Prime Minister Shehbaz Sharif’s government, arguing that the Budget is another disappointing example of policy driven more by debt obligations than by economic reality. Experts argue that the budget falls short on structural and bold reforms, which is concerning given Pakistan’s economic fragility.
Experts say Pakistan’s economic woes stem from a mix of poor governance, over-reliance on foreign aid, excessive defence spending, and long-standing policies that fuel regional instability.
Aurangzeb announced a significantly increased allocation of PKR 2.55 trillion (approx Rs 76,500 crore) for defence, up from PKR 2.12 trillion (approx Rs 63,600 crore) in the outgoing fiscal.
The budget falls short on structural and bold reforms, even as the World Bank released data underscoring Pakistan’s economic fragility, showing that nearly 45% of its citizens live in poverty, and 16.5% fall under the extreme poverty category.”
Despite the fact that the country is under a massive debt of USD 274 billion, the Pakistan Finance Minister hoped his ambitious proposal would drive economic growth by 4.2 per cent in the coming fiscal year.
“This is not economic strategy, it’s fiscal handcuffing’ “The FY26 budget is yet another disappointing example of policy driven more by debt obligations than by economic reality,” The Dawn quoted Dr Mohammad Ahmed Zubair, former chief economist at the Planning Commission of Pakistan as saying.
“After grappling with stagflation in FY23 and FY24 — high inflation paired with weak growth — the economy has now slipped into outright stagnation in FY25: low growth, cooling inflation, rising unemployment, and shrinking consumer demand.” He added that any rational policymaker would see this as a moment for stimulus — spending boosts and tax relief to jumpstart growth.
“Instead, what we’re getting is a tone-deaf commitment to fiscal austerity. The government plans to slash the budget deficit from 5.6pc in FY25 to 3.9pc in FY26, and raise the primary surplus target from 2.2pc in FY25 to 2.4pc in FY26. That’s not reform — it’s retreat,” he lamented, adding that tax revenues were projected to rise a staggering 19pc, while current spending (excluding debt servicing) was targeted to rise by 8.5pc in FY26.
“Let’s be clear: this is not economic strategy, it’s fiscal handcuffing,” he said. “The debt servicing burden is dictating national priorities. Without a serious, coordinated fiscal compact — including debt restructuring and binding safeguards against future debt mismanagement — Pakistan will remain stuck in a vicious cycle of low growth, rising inequality, and deepening social pain.“It’s time to stop pretending austerity is discipline; it’s dysfunction in disguise,” The Dawn reported.
In Pakistan, unlike in the case of India, pensions and salaries are not part of the defence budget.
Finance Minister Muhammad Aurangzeb unveiled the federal budget for fiscal year 2025–26 which stands at PKR 17.573 trillion (Rs 5.27 lakh crore), down 6.9 percent from the previous year.
Pakistan secured a $1 billion package from the International Monetary Fund (IMF) on May 9 for economic reforms under a package approved last year and another $1.4 billion to reduce vulnerabilities to natural disasters.
As part of this programme, Pakistan has committed to raising revenue and cutting its fiscal deficit. Subsequently, The 2025-2026 budget has set an ambitious tax revenue target of PKR 14.131 trillion (approx Rs 4.24 lakh crore), an 8.95 percent increase over last year’s goal. However, the Economic Survey acknowledged the challenge of meeting this target amid sluggish growth and new trade tariffs from the US, Pakistan’s largest export destination.
Economist Adil Nakhoda noted that the government had reduced its outlay for the current fiscal year, which, according to him, was an anomaly. “This is likely due to the significant decline in interest payments as the government’s debt as a percentage of the gross domestic product has also declined,” he said.
The 2024-25 Economic Survey flagged serious underperformance across most sectors. Agriculture, which contributes nearly a quarter to the GDP, expanded by just 0.6%, far short of the 2% target. Key crops like wheat, cotton, and maize suffered a combined 13.5% contraction, far worse than initial estimates.
Aurangzeb defended the figures by comparing Pakistan’s performance to global trends. He noted that while global economic growth is forecast to slow—from 3.5% in 2023 to 2.8% in 2025—Pakistan’s recovery from a 0.2% contraction in 2023 to 2.5% growth in 2024 signals gradual improvement. He stressed that the aim is steady and sustainable development, not boom-and-bust cycles.
Aurangzeb also announced moves to procure cheaper energy by shutting down expensive power plants and attracting foreign investment from countries like Turkey in the oil and gas sector, underscoring Pakistan’s deepening ties with Turkey.
Recently, Asian Development Bank (ADB) has also approved an $800 million financial support package for Pakistan.
