Pakistan has presented an 18.77 trillion rupee (about $67.49 billion) budget that reflects a strong rise in defence spending alongside reduced allocations for development projects. The government is trying to meet IMF programme requirements while also managing domestic political pressures, which leaves little room for tax cuts or expanded welfare initiatives.

Finance Minister Muhammad Aurangzeb stated that defence expenditure will increase to 3 trillion rupees in the upcoming fiscal year starting July, marking an 18% rise from the previous year. In contrast, federal development spending has been limited to 1 trillion rupees, showing a clear shift toward security and debt obligations over infrastructure and social investment.

This rise in defence funding came after discussions with provincial authorities, who agreed to redirect resources toward security, resulting in reduced provincial development budgets. Aurangzeb said the higher defence allocation was aimed at making the country “invincible” amid regional uncertainty. The budget reflects Pakistan’s tight fiscal situation, where debt repayments, military needs, and IMF conditions dominate spending priorities. Tax revenue is expected to reach 15.26 trillion rupees, an 8.2% increase, even though the Federal Board of Revenue has previously missed its targets.

A large portion of revenue is projected from taxes and levies, especially petroleum levies, which are expected to generate 20.60 trillion rupees. Analysts warn that the tax burden will mainly fall on salaried individuals and formal businesses, while sectors like agriculture, retail, and real estate continue to remain lightly taxed due to political influence. The fiscal deficit is projected at 7.02 trillion rupees, with an overall deficit target of 3.6% of GDP after accounting for a provincial surplus. The government has also committed to achieving a primary surplus of 2% of GDP under its IMF agreement, meaning it must collect more than it spends before interest payments.

The budget was delayed by a week and comes at a time of renewed inflationary pressure driven by rising global oil prices linked to the U.S.-Israeli conflict with Iran. This has pushed inflation back into double digits after earlier signs of stabilisation. Economic targets for the coming year include 4% growth and 8.2% inflation, compared with 3.7% growth and 6.7% inflation in the previous year.

Pakistan continues to face severe economic challenges after narrowly avoiding default in 2023 and relying on a $7 billion IMF programme. High debt servicing costs, rising defence spending, and external shocks are tightening fiscal space and limiting social spending, with much of the adjustment burden expected to fall on the middle class. The budget reflects a security-focused fiscal strategy driven by external constraints, but it raises concerns about long-term development, inequality, and economic sustainability.