ISLAMABAD:
The federal government is considering a further increase in defence spending for the upcoming fiscal year to address what it views as growing security threats from India, sources within the finance and defence ministries told The Express Tribune.
This potential revision comes after an earlier decision to raise the defence budget by 18% for FY 2025-26, lifting the allocation from last year’s Rs2.1 trillion. However, officials are now questioning whether that increase will be sufficient in light of evolving regional security challenges.
The issue has been under discussion between the Ministry of Finance, Ministry of Defence, and the International Monetary Fund (IMF). While the IMF initially estimated a 12% increase—capping defence expenditure at Rs2.42 trillion—the government is now weighing an even larger boost, possibly up to 25%, which would require an additional Rs500 billion to cover procurement, development programs, and outstanding defence liabilities.
IMF Conditions and Fiscal Adjustments
Finance Minister Muhammad Aurangzeb, when asked about IMF flexibility on the defence budget increase, emphasized that Pakistan remains committed to its structural reform agenda and fiscal targets, including the Rs2.2 trillion primary budget surplus, roughly 1.7% of GDP.
IMF’s regional director Jihad Azour, who is currently in Islamabad, has held high-level talks including with Aurangzeb, and is scheduled to meet Prime Minister Shehbaz Sharif. The outcome of these meetings could shape how much fiscal room Pakistan can create for a potential defence hike.
Provincial Contributions and Budget Reallocation
Government officials revealed discussions about asking provincial governments to shoulder part of the increased defence burden. Petroleum Minister Ali Pervaiz Malik proposed that provinces, many of which hold significant cash surpluses, should contribute at least half of the additional cost.
“There were attacks in Punjab and Sindh, so the provinces must also step up,” a government official commented, emphasizing the national nature of the threat.
To accommodate increased defence needs, the Finance Ministry is exploring cuts to non-essential subsidies, particularly in the power and banking sectors. For example, over Rs1 trillion in energy subsidies has been earmarked, despite declining electricity prices.
Meanwhile, the Public Sector Development Programme (PSDP)—currently proposed at Rs921 billion—may see limited expansion despite coalition partners lobbying for a Rs1 trillion-plus development budget. The Finance Ministry prefers prioritizing defence over development to manage fiscal constraints.
Tax Collection Woes and IMF Frustration
The Federal Board of Revenue (FBR) remains a critical weak link, failing to meet revenue targets and struggling with implementation of IMF-endorsed measures. Recent meetings between FBR and IMF officials have reportedly been unproductive, with the global lender expressing dissatisfaction over underperformance.
In response, PM Shehbaz Sharif has formed a committee to resolve tax refund delays affecting oil refineries and address inefficiencies in the current taxation policy, including reconsidering the 1% advance income tax on exports.
Escalating Tensions: India Blamed for School Bus Attack
Amid these budgetary deliberations, Pakistan has accused India of sponsoring a terrorist attack on a school bus in Khuzdar, Balochistan, which killed three children and two soldiers, and injured 53 others, including 39 children. The government labeled the attack a “cowardly act” by India’s state-backed proxies, describing it as part of a broader strategy to destabilize Pakistan through non-conventional warfare.
The Prime Minister’s Office condemned the assault, calling it a continuation of failed attempts by India to pressure Pakistan militarily, now resorting to targeting civilians through insurgent proxies, particularly in Balochistan and Khyber Pakhtunkhwa.
Conclusion: One-Time Exceptional Defence Boost Likely
In light of escalating regional tensions and increasing threats, government officials suggest that Pakistan’s defence budget may need a one-time, exceptional increase to upgrade the army, navy, and air force, ensuring national security in the face of heightened risks.
