Pakistan is set to significantly boost its defense budget for the fiscal year 2025-26, with officials proposing a 24 percent increase, amounting to an additional Rs. 500 billion. This would bring the total defense allocation to approximately Rs. 2.6 trillion, up from last year’s Rs. 2.1 trillion, as the country seeks to bolster its military capabilities in response to potential threats from India.

The initial proposal called for an 18 percent hike, but authorities now consider that figure inadequate given the current security environment. The expanded budget aims to replenish depleted military arsenals, extend the armed forces’ development program beyond its current Rs. 270 billion, and settle outstanding military liabilities. Officials have described the move as a one-time adjustment to reinforce the army, navy, and air force.

Despite the substantial increase, the International Monetary Fund (IMF) has not raised objections, provided Pakistan maintains its primary budget surplus target of Rs. 2.2 trillion, or 1.7 percent of GDP.

To accommodate the higher defense spending, the Finance Ministry is weighing cuts to unproductive subsidies, particularly the more than Rs. 1 trillion allocated to the power sector, which persists despite declining electricity prices. Some subsidies in the banking sector may also be redirected. Additionally, the federal government is urging provincial administrations to share the financial burden.

At the same time, political pressure is mounting to expand the Public Sector Development Program (PSDP), currently set at Rs. 921 billion. Coalition partners are pushing for an increase to over Rs. 1 trillion, but the Finance Ministry is advocating restraint in development spending to prioritize defense needs.