Pakistan's defence spending in a cash-strapped Budget raises IMF eyebrows: Report

Pakistan is struggling under the weight of debt repayments, security spending and a constrained IMF programme.

Facing mounting pressure from the International Monetary Fund (IMF), Pakistan has unveiled a sharply reduced federal development plan for the upcoming fiscal year — even as it reportedly plans to increase its defence spending.

According to a report in Dawn, a final approval from IMF is awaited amid disagreements over Islamabad's proposed hike in defence spending despite the financial difficulties plaguing the country.

Pakistan’s tight fiscal adjustments stand in stark contrast to its plans to significantly increase defence spending, raising serious questions about Islamabad's priorities amid deepening economic turmoil.

Islamabad has reportedly postponed the presentation of its budget by a week to June 10 since there were disagreements with the IMF team over increase in defence spending and tax cuts for the middle class, the Dawn report suggested. The budget was originally scheduled to be presented on June 2.

"The lender wants the authorities to come up with credible proposals, identifying alternative sources of revenue to offset the impact of the increase in defence and other expenditures and the cuts in taxes," the report said.

Earlier, reports said that Pakistan was planning to hike its defence spending by 18% in the next fiscal starting July in the wake of the recent military escalation with India.

Pakistan has historically allocated a significant portion of its total outlay to defence since it views India as an "existential threat". In FY25, Pakistan's defence spending stood at 2.3% of its GDP — a decline from previous years due to severe economic challenges. However, it was still higher than India's proportion, which was 2% of its GDP.

IMF shadow looms

The Dawn report said that the Annual Planning Coordination Committee (APCC) has approved a Rs 4.083 trillion national development outlay for 2025, a record high largely driven by Punjab and Sindh’s financial muscle rather than federal strength.

However, the Pakistan government continues to struggle under the weight of debt repayments, security spending and a constrained IMF programme.

The IMF had imposed strict conditions on Pakistan for future bailouts. As per the conditions, Pakistan must seek parliament nod for the federal budget for the next fiscal year in line with the IMF agreement by June, implement agricultural income tax reforms across all provinces and draft a plan for phasing out industrial incentives by the end of the year.

Pakistan planning minister Ahsan Iqbal spelt out the dire fiscal reality during the APCC meeting.

“Pakistan faced some limitations with the IMF programme,” he said, urging provinces not to demand federal funds given their healthier fiscal positions. “The challenge ahead is to leverage the limited resources to achieve maximum returns.”

Brutal spending cuts

According to the Dawn report, the cuts spare only road-building schemes and the controversial discretionary funds for parliamentarians.

The Public Sector Development Programme (PSDP) for FY2025 has been slashed by 20% to Rs 880 billion, compared to the current year’s revised Rs 1.1 trillion, and 37% below the original Rs 1.4 trillion target.

Other sectors facing sharp cuts:

Infrastructure: Rs 644 billion (down from Rs 661 billion)

Energy: Rs 144 billion (down from Rs 169 billion)

Water: Rs 109 billion (down from Rs 135 billion)—despite India’s ongoing dam construction projects

Housing and Physical Planning: Rs 59 billion (down 34% from Rs 89 billion)

Social SectoRs : Rs 150 billion (down 25% from Rs 200 billion)

Science and Technology: Rs 53 billion (down from Rs 62 billion)

Governance Projects: Rs 9 billion (down from Rs 17 billion)

Production Sectors : Rs 11 billion (down from Rs 15 billion), with food and agriculture hit the hardest—just Rs 3 billion, compared to Rs 8 billion this year.