Pakistan has announced a significant 20% hike in its defence budget for the fiscal year 2025–26, marking the steepest increase in decades. This decision comes at a time when the country is struggling with a massive external debt of $274 billion and shrinking foreign reserves. Despite cutting its overall budget by nearly 7%, the government has allocated PKR 2.55 trillion approximately 14.5% of its total annual budget to the military. This reflects Pakistan's continued prioritization of defence spending, even as its economy remains heavily reliant on external financial lifelines.
While the International Monetary Fund does not directly finance military expenditures, its loans provide Pakistan the economic cushion to redirect domestic revenue toward defence. The recent $7 billion loan from the IMF and earlier support under the Stand-By Arrangement have stabilized Pakistan's fiscal space, allowing the military to remain well-funded. China remains Pakistan’s most prominent external creditor, rolling over billions in loans and contributing heavily through military and infrastructure partnerships, particularly under the China-Pakistan Economic Corridor (CPEC). Gulf countries like Saudi Arabia and the UAE continue to offer crucial financial support through deposits and rollovers, which indirectly enable Pakistan to maintain high defence expenditure while meeting IMF conditionalities.
The recent increase also follows India’s strikes during Operation Sindoor and heightened border tensions, which have escalated the demand for stronger military posturing. Pakistan’s army-led establishment, with backing from Prime Minister Shehbaz Sharif, sees defence as a strategic necessity. The country’s long-standing security-first narrative, powered by external support systems, keeps military spending high often at the expense of development. With China and Gulf states offering consistent financial buffers and the IMF’s fiscal support creating room, Pakistan’s powerful military remains well-fueled despite growing internal economic distress and calls for more transparent governance.
