Pakistan is set to raise its defence budget to Rs2.8 trillion for the fiscal year 2025-26, marking a 32% increase from last year. This hike is mainly due to ongoing tensions with neighboring India, which the report describes as a “war-like situation.” The increased funds will support new military recruitment and strengthen defence capabilities amid regional uncertainty.
According to Tola Associates, a tax advisory firm, defence spending in the current fiscal year may surge by 50% in the last quarter due to heightened security concerns. Historically, a large portion of defence expenses is incurred in the year’s final months. The firm estimates Pakistan’s total defence expenditure could reach Rs2.4 trillion by June 2025, reflecting the urgent need for readiness.
The overall federal budget for 2025-26 is expected to shrink to Rs17.2 trillion from Rs18.9 trillion in 2024-25. This decrease is largely due to reduced interest payments, which are projected to fall from Rs9.8 trillion to Rs7.5 trillion. Meanwhile, the public sector development program’s budget is estimated to drop from Rs1.4 trillion to Rs950 billion, signaling tighter spending on development projects.
Tax revenue collection by Pakistan’s Federal Board of Revenue (FBR) is forecasted at Rs13.5 trillion for the next fiscal year. This projection considers an inflation rate of 10% and a modest GDP growth rate of 3%. Budget talks between the government and the International Monetary Fund (IMF) are ongoing and expected to continue in the coming days.
Tola Associates calls the upcoming budget a crucial chance for Pakistan to realign its economy. They stress the importance of balancing economic growth with fiscal stability. The firm urges reforms aimed at steady economic progress, warning that without them, Pakistan’s recovery may remain fragile amid defence spending pressures.