Pakistan raises defence budget by 20% after Op Sindoor, cuts overall outlay

Pakistan's total budget outlay decreases by 7% to 17.573 trillion Pakistani rupees ($62 billion)

Pakistan Finance Minister Muhammad Aurangzeb unveiled the annual federal budget for FY 2025-26 on Tuesday, expanding the budget for the defence sector by 20 per cent to 2.55 trillion rupees ($9 billion), following the conflict with India in May.

 

The federal budget for FY 2025-26 has a total outlay, the sum of expenditures and net lending of funds, of 17.573 trillion Pakistani rupees ($62 billion), representing a 6.9 per cent decrease from the previous year’s budget.

 

Pakistan allocated 2.1 trillion Pakistani rupees ($7.45 billion) for defence in the outgoing fiscal year, including $2 billion for equipment and other assets. An additional 563 billion Pakistani rupees ($1.99 billion) was set aside for military pensions, which are not counted within the official defence budget.

 

 

At the beginning of his speech, Muhammad Aurangzeb said: “This budget is being presented during a historic moment, as the country pressed on through difficult times.”

 

“This budget is being presented at a historic time when the nation showed unity [and] determination,” he said, mentioning the recent India and Pakistan conflict.

 

He said that the taxpayer base in Pakistan has increased by 100 per cent. He also said the government will bring a tariff reforms package to increase exports of the country. 

 

Pakistan's growth

 

Pakistan government has projected 4.2 per cent economic growth in 2025-26, saying it has steadied the economy, which had looked at risk of defaulting on its debts as recently as 2023. Growth in FY25 is likely to be 2.7 per cent, against an initial target of 3.6 per cent set in the budget last year.

 

The growth of Pakistan lags far behind the region. In 2024, South Asian countries grew by an average of 5.8 per cent and 6 per cent growth is expected in 2025, according to the Asian Development Bank.

 

The IMF has urged Pakistan to widen the tax base through reforms, which include taxing agriculture, retail, and real estate.

 

(With inputs from Reuters)