Pakistan’s newly unveiled 2025‑26 federal budget brings austerity into sharp relief: overall spending is trimmed by 7 percent to Rs 17.57 trillion ($62 billion), yet expenditure on two sectors—defence and power/energy—soars to the top of the allocation list.
🛡️ Defence Spending Up 20 Percent
Defence spending receives a significant 20 percent increase, rising to Rs 2.55 trillion ($9 billion) from last year’s Rs 2.12 trillion. The rise is a direct response to renewed tensions with India—marked by recent military clashes—and is driven by the need to enhance border readiness.Defence now represents approximately 1.97 % of GDP, a rise from 1.71 %.
Prime Minister Shehbaz Sharif defended the allocation, contending that, on one hand, it represents a commitment to national security, while on the other, it signals economic strength, despite worries over Pakistan’s economic fragility and debt servicing challenges.
⚡ Power & Energy: The Biggest Spending Share
While defence surged, power and energy sectors claimed the largest share of non-defence current spending. This year’s budget continues government focus on the energy network—subsidies, infrastructure, and generation—to counter chronic electricity shortages that strain businesses and households.
Specific allocations include:
- Subsidies tagged under “mitigation” for Rs 529 billion
- Climate-linked interventions worth Rs 603 billion under the Public Sector Development Programme (PSDP)
The inclusion of climate tagging in energy projects responds to IMF loan conditions, requiring Pakistan to identify and allocate funds for green investments—balancing fiscal priorities with environmental commitments.
💰 Overall Budget Cuts
Beyond defence, all other sectors saw sharp reductions. Total current expenditure fell by 5.3 percent, with daunting cuts also in development projects. Interest payments dropped by 16 percent to Rs 8.2 trillion—yet remain the single largest expenditure item, consuming nearly half of the budget.
The government stresses fiscal responsibility, targeting a deficit of 3.9 percent of GDP, down from last year’s 5.9 percent, and approximating the IMF-guided target of 4.8 percent. Revenue generation aims include aggressive targets for expanding the tax base, especially in agriculture, retail, and real estate.
🎯 Balancing Security and Economic Growth
The twin priorities—defence and energy—reveal a delicate dashboard of national strategy:
| Priority | Implication |
|---|---|
| Defence | Strengthens military readiness amid regional tensions |
| Energy | Aims to stabilize power supply and energize industries |
| Cuts | Risk delaying development in education, health, and agriculture |
While security gains headline the budget, analysts caution that such emphasis may further impede inclusive growth—raising questions about whether cuts to social sectors will undermine long‑term development.
🧭 Outlook & Risks Ahead
Economists note that the increased defence outlay, although far smaller compared to India’s military budget ($78 billion), still reflects a significant reallocation of scarce resources. With Pakistan’s debt service burden nearing Rs 8 trillion, any misstep in economic reform or climate investment may put future budgeting under pressure.
Going forward:
- Monitor tax collection success—can FBR meet its goals?
- Assess PSDP execution—are energy projects delivering value?
- Watch IMF compliance—will new spending align with loan conditions and economic discipline?
✅ Final Word
Fiscal year 2025-26 is the time when Pakistan’s government has drawn a line in the sand: security and energy take priority. Whether that strategy can actually help achieve the growth target of 4.2 percent GDP growth (up from 2.7 percent this year) depends on tax efficiency, development of green energy, and macroeconomic stability.
