Pakistan Raises Defence Budget by 17.6% as IMF-Backed Fiscal Tightrope Continues

Pakistan has increased its defence spending by 17.6 per cent to PKR 3 trillion for the 2026-27 fiscal year, as Prime Minister Shehbaz Sharif’s government unveiled a budget focused on security needs, debt obligations and commitments under an IMF programme .

Finance Minister Muhammad Aurangzeb presented a federal budget of PKR 18.77 trillion in the National Assembly, setting a 4 per cent GDP growth target after the economy expanded by an estimated 3.7 per cent in FY2025-26, below the earlier target due to external shocks and regional instability.

The defence allocation marks a sharp increase from last year’s PKR 2.55 trillion and comes amid heightened regional security concerns. What was not highlighted in many initial reports is that the increase follows recent India-Pakistan tensions , which Pakistani officials have cited as a key factor behind strengthening military preparedness and strategic capabilities.

The budget projects a fiscal deficit of about 3.6 per cent of GDP while seeking to maintain IMF-mandated fiscal discipline. Debt servicing remains the government’s largest expense, with PKR 8.054 trillion allocated for interest payments. Combined with defence spending, these commitments account for a major share of federal expenditure, leaving limited room for new development projects. The Public Sector Development Programme has been maintained at PKR 1 trillion.

The government has set a PKR 15.264 trillion tax collection target for the Federal Board of Revenue and expects exports to reach USD 32.8 billion. The budget also includes tax relief for some salaried workers and a 7 per cent increase in government employees’ salaries.

Meanwhile, opposition party Pakistan Tehreek-i-Insaf continued protests in Parliament over the imprisonment of former prime minister Imran Khan.