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Pakistan has announced plans to boost defence spending by 17 per cent within the fiscal yr ending June 2026, while cutting overall government spending by seven per cent to Rs17.57tn ($62bn),
In a budget issued only a month after the worst fighting between Pakistan and arch-rival India in a long time, finance minister Muhammad Aurangzeb on Tuesday earmarked Rs2.55tn for defence for the yr starting July 1, up from Rs2.18tn in 2024-25.
The cash-strapped country, where the military wields broad influence over political and economic affairs, is ready to embark on a defence spending spree to patch up holes in its armoury highlighted in clashes with India.
“After defeating India in a traditional war, we now need to surpass it within the economic field as well,” Prime Minister Shehbaz Sharif told his cabinet as he approved the budget. India has said last month’s clashes demonstrated its military superiority over its smaller neighbour.
The Pakistan government revealed in a post on X on Friday that China had offered it 40 J-35 fifth-generation stealth fighter jets, in addition to advanced airborne early warning and anti-missile and anti-satellite systems. It didn’t say how much it’d pay for the equipment.
Pakistan and India last month traded waves of missiles and drones that struck deep into one another’s territories, killed civilians, and brought the 2 nuclear-armed countries to the brink of all-out war.
The country of 240mn people has begun a fragile economic recovery buoyed by a stringent $7bn IMF programme. An official survey released on Monday said annual inflation was projected to have fallen to 4.7 per cent for fiscal 2024-25, from 26 per cent the previous yr. It estimated economic growth for 2024-25 at around 2.7 per cent.
The federal government has set an ambitious 4.2 per cent growth goal for the following yr. However the economic survey also revealed deep weaknesses plaguing what’s one in every of Asia’s most troubled economies, two years after it teetered on the brink of default. Major crop production, including rice and wheat, is projected to have fallen by 13 per cent. Large-scale manufacturing, battered by inflation and a surge in power prices, contracted.
Even when Pakistan achieves its growth goal, the economy would still lag the south Asia region, which the World Bank forecasts will grow 6.1 per cent in 2026. Trade tariffs of as much as 29 per cent threatened by the US, Pakistan’s largest export partner, could also undermine the competitiveness of its garment producers in a promote it relies on for foreign exchange.
To fund the defence spending, in addition to interest payments projected to eat up 46 per cent of total spending, the federal government said it could cut expenditure by 6.9 per cent and increase its tax take by 18 per cent to Rs14.1tn. Nonetheless, tax revenues for 2024-25 were Rs1tn in need of the federal government’s original Rs12.9tn goal for the yr.
The central bank has halved its benchmark rate of interest to 11 per cent since June 2024, allowing the federal government to announce some tax cuts on Tuesday for salaried staff and corporations that bore the brunt of last yr’s budget.
Pakistan’s parliament will vote on the proposed budget later this month.
