ADNAN AAMIR
ISLAMABAD — Pakistan has drastically raised its defense spending in its latest budget, citing heightened security demands following its recent military standoff with India. In contrast, development allocations have been trimmed to meet the International Monetary Fund’s conditions for fiscal discipline.
Pakistan on Tuesday announced its budget for fiscal 2026, which begins on July 1, with a total outlay of $62 billion. Out of this budget, $29 billion will go toward debt financing. The most significant development in the budget is a defense spending allotment of $9 billion, which marks an increase of about 17% from the previous year.
Figures in dollar terms are converted from the original Pakistani rupee values announced by the country’s finance ministry, using an exchange rate of 282.21 rupees per dollar.
This move comes as Pakistan recalibrates its military preparedness after the recent conflicts with India. The four-day exchange of fire with India that began on May 7 left 51 dead on the Pakistani side and at least 16 killed on the Indian side.
Experts said that an increase in defense spending was inevitable.
“In Pakistan, the most serious conflict with India in several decades would certainly generate an incentive for more defense spending,” Michael Kugelman, a South Asia analyst, told Nikkei Asia. “The public’s support for efforts to counter India arguably gives the civilian and military leadership the political space to take these steps.”
There is a view by some that the government should have allocated even more budget for defense. One group with this opinion is Tola Associates, a tax advisory and consultancy firm, who said in a recent budget-related report that defense spending should be increased by 32%. “It is proposed to enhance the defense budget to $10 billion in fiscal 2026 due to the war situation with the neighboring country and the new recruitment of army personnel,” the report said.
Some experts believe that the question is not only about how much the total defense budget will increase. “Indian defense spending continues to remain almost nine times that of Pakistan,” Syed Muhammad Ali, an Islamabad-based security analyst, told Nikkei. “[The large gap] indicates that Islamabad wants to credibly and cost-effectively deter India without engaging in a costly arms race in the region,” he said.
Other officials and experts told Nikkei that among its three forces, Pakistan will focus on boosting its air defense.
“Pakistan will purchase HQ-19 missiles from China, among other arms, to strengthen its air defenses against future Indian attacks,” a government official told Nikkei on condition of anonymity. HQ-19 is a Chinese surface-to-air missile system designed to counter medium-range ballistic missiles.
HQ-19 surface-to-air missile systems on display at Airshow China in Zhuhai, Guangdong province, on Nov. 14, 2024. A Pakistani official told Nikkei Asia that the country will buy such weapons from China “to strengthen its air defenses against future Indian attacks.” © ReutersKugelman said that Pakistan will make defense spending decisions for strengthening vulnerable areas that became apparent in the recent conflict, and such air defense systems are first on the list. “India was able to deploy missiles and drones deep into Pakistani territory and with considerable intensity. This is a key area to which we can expect some of the scaled-up funding to be directed,” he added.
Ali also views air defense and related areas as likely priorities. “In contrast to conventional and traditional land-air-sea battle concepts, there is a growing role of aerospace power, [such as] beyond visual range air combat, electronic warfare, drone warfare, missile warfare and cyber warfare,” he said.
However, Pakistan’s budget has also been under tight scrutiny by the IMF, which signed a $7 billion loan deal with Islamabad in September last year.
“As Pakistan remains in a 37-month IMF program through 2027, the Fund plays a central role in shaping the budget,” Naafey Sardar, an assistant professor of economics at U.S.-based St. Olaf College, told Nikkei. “Without IMF approval, Pakistan cannot unlock program-linked funding or support from other multilateral lenders.”
“The IMF is likely to push for stronger compliance and a broader tax base, raising the likelihood of further tax hikes on certain sectors, with limited relief for the salaried class,” he added.
The IMF’s demands to run a tight budget have resulted in Pakistan cutting down its development spending.
A man counts Pakistani rupee notes at a currency exchange shop in Peshawar, Pakistan, on Sept. 12, 2023. © ReutersPakistan earmarked $3.5 billion for development spending in the upcoming budget, a sharp cut of $1.4 billion as compared to the last budget.
“This reduction will most likely further hamper and potentially slow down key social and infrastructure projects, especially as development spending has repeatedly been the target of budget cuts in recent years to meet IMF program targets,” Sardar told Nikkei.
“When the defense budget increases in such a scenario, the [development] budget for health and education is reduced,” said Tahir Naeem Malik, a professor at the National University of Modern Languages in Islamabad.
“With a population of 250 million, Pakistan has vast needs in these sectors. This creates a friction: should the focus be on human development or defense?” asked Malik.
The article appeared in the asia.nikkei