Pakistan has increased its defence spending by over 20 percent, marking the most substantial hike in a decade, following last month’s military confrontation with neighboring India. Finance Minister Muhammad Aurangzeb announced the allocation of 2.55 trillion rupees ($9 billion) for the country’s three armed services, amounting to 1.97 percent of Pakistan’s gross domestic product (GDP), up from 1.7 percent in the previous budget.
Aurangzeb stated, “The security situation in the country is precarious, and the armed forces have rendered commendable service in protecting the borders.” This move is seen as a response to rising security threats from India, which has threatened to carry out strikes if armed groups carry out attacks on India or Indian-administered Kashmir.
The recent conflict between the two nuclear-armed neighbors resulted in tit-for-tat missile and drone attacks over four days, primarily targeting each other’s military installations. A ceasefire was eventually announced by United States President Donald Trump on May 10, after more than 70 people were killed.
Analysts say Islamabad will need to balance its defence spending with the demands of the International Monetary Fund (IMF), which has been pressuring Pakistan to streamline its expenditure, reduce subsidies, and improve governance structures. Pakistan’s fragile economy remains reliant on IMF loans, with the global lender approving a 37-month, $7 billion loan programme for Pakistan last September.
“The only way out of this dilemma for Pakistan is to undertake deep structural reforms of the sort which no government has shown a commitment to yet, so that both the economy and defence spending can stay robust over the medium and long terms,” said Ali Hasanain, an economics professor at the Lahore University of Management Sciences.
Pakistan’s defence spending hike reflects a broader global trend, with global military expenditure reaching $2.7 trillion in 2024, a 9.4 percent increase from the previous year. Hina Shaikh, a Lahore-based economist, noted that the increase in Pakistan was expected, given the government’s prioritization of security amid geopolitical tensions and domestic instability.
However, she added that “while understandable from a strategic lens, this increase does come when economic recovery is just beginning to happen, but still fragile, inflation is easing and fiscal space is constrained.” The government faces a significant challenge in funding the defence spending hike without compromising social welfare, health, or education sectors, given Pakistan’s sizable external debt and large budget allocation for debt servicing.