ISLAMABAD: Pakistan’s decision to boost defence spending by 18% to over Rs 2.5 lakh crore in the 2025-26 budget has ignited fresh debate over the cash-strapped nation’s fiscal priorities as economic woes deepen and inflation hits more than 38%.
Economists warned the latest defence allocation framed as a response to escalating tensions with India following the April 22 Pahalgam attack that killed 26, mostly tourists, risks derailing economic reforms and squeezing social spending.
Cross-border firing along LoC intensified in 2025. In response, Islamabad has vowed to ramp up military preparedness while simultaneously pushing forward with costly hydropower projects.
Planning and development minister Ahsan Iqbal identified water security as a strategic imperative, accusing India of “water aggression” through upstream dam projects on rivers shared under Indus Waters Treaty. “We will not allow India to exploit our water resources,” Iqbal said, pledging accelerated work on the $14bn Diamer-Bhasha Dam.
Expected to produce 4,500MW and store 8.1mn acre-feet of water, Diamer-Bhasha is still years from completion, hindered by funding gaps and logistical setbacks.
Analysts questioned whether Islamabad can sustain simultaneous defence and infrastructure pushes. Economist Dr Kaiser Bengali called the approach risky. “Diverting funds to defence and megaprojects like Diamer-Bhasha could undermine social spending and economic reforms, leaving ordinary Pakistanis to bear the brunt,” he said Sunday.
Pakistan’s debt-to-GDP ratio stands near 70%. With a trade deficit of $25bn in 2024 and import cover for barely three months, fiscal space remains tight. Facing a severe financial crunch with foreign reserves hovering at $3bn, Islamabad is under pressure from a $7bn IMF bailout programme that demands strict fiscal controls.
Govt denied IMF pressure delayed the federal budget, attributing it instead to PM Shehbaz Sharif’s foreign travel and Eid holidays. Analysts remain unconvinced.
“IMF’s oversight is inescapable,” Bengali said. “This budget reflects a juggling act between security concerns and economic survival.”
Economists warned the latest defence allocation framed as a response to escalating tensions with India following the April 22 Pahalgam attack that killed 26, mostly tourists, risks derailing economic reforms and squeezing social spending.
Cross-border firing along LoC intensified in 2025. In response, Islamabad has vowed to ramp up military preparedness while simultaneously pushing forward with costly hydropower projects.
Planning and development minister Ahsan Iqbal identified water security as a strategic imperative, accusing India of “water aggression” through upstream dam projects on rivers shared under Indus Waters Treaty. “We will not allow India to exploit our water resources,” Iqbal said, pledging accelerated work on the $14bn Diamer-Bhasha Dam.
Expected to produce 4,500MW and store 8.1mn acre-feet of water, Diamer-Bhasha is still years from completion, hindered by funding gaps and logistical setbacks.
Analysts questioned whether Islamabad can sustain simultaneous defence and infrastructure pushes. Economist Dr Kaiser Bengali called the approach risky. “Diverting funds to defence and megaprojects like Diamer-Bhasha could undermine social spending and economic reforms, leaving ordinary Pakistanis to bear the brunt,” he said Sunday.
Pakistan’s debt-to-GDP ratio stands near 70%. With a trade deficit of $25bn in 2024 and import cover for barely three months, fiscal space remains tight. Facing a severe financial crunch with foreign reserves hovering at $3bn, Islamabad is under pressure from a $7bn IMF bailout programme that demands strict fiscal controls.
Govt denied IMF pressure delayed the federal budget, attributing it instead to PM Shehbaz Sharif’s foreign travel and Eid holidays. Analysts remain unconvinced.
“IMF’s oversight is inescapable,” Bengali said. “This budget reflects a juggling act between security concerns and economic survival.”
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