The federal government will partly use provincial grants to support defence spending next fiscal year, Finance Minister Muhammad Aurangzeb said. The move aims to address rising security needs and potential economic fallout from regional tensions. Meanwhile, the government approved over Rs20 billion in relief measures for civil servants.
Addressing a post-budget press conference in Islamabad, Aurangzeb said provinces had provided more than Rs1 trillion to help meet urgent financial requirements. He stated that part of the contribution had been reflected in the defence budget after an 18 percent increase in defence spending. He added that discussions were underway to develop a three-year contribution framework with the provinces.
The finance minister said the funds would also create a buffer against inflationary pressures linked to the Middle East conflict. He warned that disruptions to energy infrastructure and supply routes could affect the next fiscal year. According to Aurangzeb, economic impacts from the regional crisis are unlikely to disappear within weeks.
Meanwhile, the government approved several relief measures for federal employees following recent protests. Officials merged two ad hoc allowances into basic pay and introduced additional benefits. The package includes higher conveyance allowances, revised compensation rates, and special allowances for various departments. The total cost of these measures exceeds Rs20 billion.
Aurangzeb also confirmed ongoing consultations with the IMF on tax relief proposals worth Rs360 billion. He said all final decisions would be taken in coordination with the lender. Separately, the minister renewed calls to revise the NFC resource distribution formula, arguing that the current population-based system requires reconsideration.