Pakistan scales up defence budget, but who is really fuelling it?
Pakistan, which already has an overall debt of USD 274 billion, raised its defence budget by 20%. The massive hike from the previous budget comes even as Pakistan has cut its overall budget by 6.9%. This is one of the largest increases in decades and will require the government to slash spending accordingly. The hike in estimated defence expenditure by the 'security-state' comes after Pakistan suffered serious military setbacks from Indian strikes during Operation Sindoor. But how is Pakistan, which seeks loans from the International Monetary Fund (IMF) to repay the old ones, with a massive external debt funding its defence budget, and who is fuelling it?advertisementDefence forces have been allocated almost 14.5% of Pakistan's total annual budget, which is around 1.97% of its GDP.Pakistan Finance Minister Muhammad Aurangzeb unveiled the annual federal budget for FY 2025-26 on June 10.
This comes after Pakistan's Planning Minister, Ahsan Iqbal, previously confirmed on May 23 that the federal government would raise its defence budget for the upcoming fiscal year. He cited the recent military escalation with India and New Delhi's suspension of the Indus Waters Treaty as key factors behind the decision, according to a Pakistani daily, Dawn.Before this, Pakistan's federal government approved an 18% hike in defence expenditure. It, too, cited the escalation in tensions with India as a key reason for the defence budget hike.Tensions between India and Pakistan escalated after the April 22 Pahalgam terror attack, with India carrying out precision strikes on terror infrastructure in Pakistan and Pakistan-occupied Kashmir on May 7.advertisementPakistan has overused its military muscle and thereby its estimated military expenditure in its proxy wars against India. This, despite the Islamic Republic's lack of hesitation to seek monetary help, is a reality even acknowledged by PM Sharif. Yet, Pakistan continues to secure funding, loans, and bailouts, while evading meaningful accountability in curbing and acting on terror. At this juncture, one must ask: who is really funding Pakistan?PAKISTAN ON BORROWED FUNDS AND SUPPORT1. IMF SUPPORT FOR PAKISTAN: Pakistan has relied heavily on the IMF since 2023, securing a $3 billion Stand-By Arrangement to stabilise its economy.In September 2024, the IMF approved a $7 billion loan to cash-strapped Pakistan.While IMF funds aren't directly used for military spending, they stabilise Pakistan's economy and allow the government to redirect domestic funds toward defence. This leaves the army-controlled Sharif's government to channel money into the areas where Rawalpindi would want it to be done.Pakistan has taken more than 20 loans from the IMF since 1958 and is currently its fifth-largest debtor, noted a BBC report.As a part of the deal, Islamabad agreed to a number of politically unpopular measures, including increasing the amount of tax it collects from people and businesses.advertisementIn effect, the IMF creates fiscal breathing space that enables military spending to rise.2. CHINA: BIGGEST EXTERNAL FINANCIER: Pakistan's "Iron-clad brother", China, remains its biggest external financier and key military partner.Pakistan has decided to seek a rollover of around $12 billion in debt from key allies such as China in the 2024-25 fiscal year to meet a whopping $23 billion worth of gap in its external financing, as the federal government aims to achieve budget targets before the expected arrival of an IMF team to the cash-strapped country, according to a report by The Hindu.Pakistan's Finance Ministry insiders said $3.7 billion from China will be rolled over, adding that the estimate of further new financing from China would also be included in the next financial year's budget, The Express Tribune newspaper reported in May.Nearly a third of Pakistan's total external debt is owed to China, much of it tied to infrastructure and energy projects under CPEC.China is Pakistan's most significant external financier and arms supplier, which is a well-known fact.Not just with diplomatic or military cushion, this is how China helps and enables Pakistan to go scot-free. Islamabad knows that, given its strategic location and contemporary geopolitical alignments, Beijing would have its back, even at the cost of huge interest rates.advertisement3. HELP FROM GULF NATIONS: The Arabian states of Western Asia have consistently backed Pakistan through sizeable deposits and loan rollovers to ensure IMF support. In July 2023, Saudi Arabia deposited $2 billion into Pakistan's central bank, and the UAE added $1 billion, significantly bolstering foreign reserves ahead of crucial IMF board decisions, according to Arab News.More recently, the UAE rolled over another $2 billion in January 2024 and again in early 2025.Additionally, in December 2024, Saudi Arabia extended its $3 billion deposit for another year.On top of these, Pakistan's central bank governor has signalled plans to raise up to $4 billion from Gulf-based commercial banks, including Saudi, UAE, and other regional lenders, to plug a $3-5 billion external financing gap.Therefore, it becomes clear that Pakistan's defence spending is indirectly enabled by a combination of IMF bailouts, Chinese loans, and Gulf deposits. Each lender offers a breathing room to Pakistan which lets it divert funds towards the military. While the IMF doesn't fund armed forces, and China and other lenders may not openly admit it, together they keep afloat the security state that continues to prioritise defence, and its byproduct, terrorism, over development.Must Watch
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