Pakistan’s decision to raise defence spending by 18% to over Rs 2.5 lakh crore in the 2025–26 federal budget has triggered sharp criticism over its fiscal priorities, as the country grapples with soaring inflation—now exceeding 38% and deepening economic challenges. The increased military budget, justified by Islamabad as a response to rising tensions with India following the April 22 Pahalgam attack that left 26 people, mostly tourists, dead, is seen by economists as a potential setback to much-needed economic reforms. They warn the move could significantly reduce allocations for social welfare.

The year 2025 has seen intensified cross-border shelling along the Line of Control (LoC). In response, Pakistan has committed to strengthening its military capabilities while simultaneously advancing large-scale infrastructure projects like hydropower development. Planning and Development Minister Ahsan Iqbal emphasized water security as a national priority, accusing India of "water aggression" through upstream dam activity in violation of the Indus Waters Treaty. He vowed to accelerate construction on the $14 billion Diamer-Bhasha Dam, meant to generate 4,500MW of power and store 8.1 million acre-feet of water. However, the project faces continued delays due to funding shortfalls and logistical obstacles.

Critics argue Pakistan may not have the capacity to fund both military expansion and infrastructure megaprojects. Economist Dr. Kaiser Bengali labeled the strategy dangerous, warning it could erode spending on health, education, and essential services, pushing the financial burden onto ordinary citizens.

With a debt-to-GDP ratio close to 70%, a $25 billion trade deficit in 2024, and foreign exchange reserves dwindling around $3 billion, Pakistan’s fiscal position remains fragile. The country is also bound by a $7 billion IMF bailout that demands strict spending discipline.

While the government has denied that IMF conditions caused delays in presenting the budgetciting Prime Minister Shehbaz Sharif’s overseas visits and Eid holidays many experts remain skeptical. “IMF oversight is unavoidable,” Bengali noted. “This budget reflects Pakistan’s attempt to balance security imperatives with the realities of economic survival.”