38% Inflation, Just $3 Billion In Reserves But Pakistan Still Splurging On Its Military

News18

26-05-2025

Last Updated:
Pakistan announced an 18% increase in its 2025-26 defence budget to over Rs 2.5 lakh crore, despite an economic crisis and IMF pressure, citing security concerns.
In a decision that has raised eyebrows both domestically and abroad, Pakistan has announced an 18 percent increase in its defence budget for the fiscal year 2025-26, pushing military expenditure beyond a staggering Rs 2.5 lakh crore (approximately $9 billion). The move comes at a precarious moment for the country, as it teeters under the weight of economic crisis, soaring inflation, and mounting pressure from international lenders.
The defence budget hike, unveiled just as inflation breaches 38 percent and foreign exchange reserves dip below $3 billion, has ignited intense debate over Pakistan's fiscal priorities. Pakistan remains in the grip of a fragile International Monetary Fund (IMF) programme, which has urged the country to rein in non-essential spending and increase transparency.
Yet, the Pakistani government has justified the military splurge citing heightened security concerns, particularly in the wake of the recent terrorist attack in Pahalgam, Jammu and Kashmir, in April, and an uptick in cross-border skirmishes with India along the Line of Control (LoC). Officials argue that these developments necessitated the bolstered military preparedness.
Pakistan's debt-to-GDP ratio stands near 70%, with a trade deficit of $25 billion in 2024 and limited import cover. The IMF's $7 billion bailout program imposes strict fiscal controls, and analysts suggest that the increased defence spending may complicate compliance with these conditions.
The federal budget, originally delayed due to Prime Minister Shehbaz Sharif's overseas trip and the Eid holidays, is widely believed to have been postponed to accommodate negotiations with the IMF. The fund has consistently urged Islamabad to curtail 'wasteful expenditures" and focus on revenue generation and social safety nets. However, the lion's share of government spending continues to be directed toward military and infrastructure projects.
One such controversial initiative is the Diamer-Bhasha Dam Project, a massive $14 billion hydroelectric endeavour being constructed in the contested Gilgit-Baltistan region on the Indus River. Touted as a strategic necessity, the dam is designed to generate 4,500 megawatts of electricity and store over 8 million acre-feet of water. Yet, despite years of effort, the project remains stalled – plagued by funding shortfalls, technical hurdles, and geopolitical challenges.
This week, Pakistan's Planning Minister Ahsan Iqbal escalated tensions further by accusing India of 'water aggression", claiming that India's upstream dam construction is depriving Pakistan of its share of water resources. Iqbal declared the Diamer-Bhasha Dam a 'strategic response", effectively framing it as part of a broader defence doctrine.
But the reality is more sobering. With no clear financial roadmap for completing the dam and dwindling foreign investor confidence, the feasibility of such grand infrastructure undertakings is increasingly being questioned.
Economist Dr Kaiser Bengali warned that prioritising defence and large-scale infrastructure projects like the Diamer-Bhasha Dam may undermine social spending and hinder economic reforms, adversely affecting the general population of Pakistan.
The signs of strain are already visible within the Pakistani population. With food prices spiralling and fuel costs skyrocketing, basic commodities have become unaffordable for many. Public sector salaries remain stagnant, unemployment is rising, and the education budget has reportedly been slashed, adding to the frustrations of a population grappling with one of the worst cost-of-living crises in decades.
Hospitals are underfunded, school systems are deteriorating, and electricity shortages remain rampant. Yet, amid this crisis, billions are being earmarked for defence hardware and stalled mega-dams.
Economists caution that prioritising military might over economic reform could deepen the nation's fiscal hole. 'Every rupee spent on the military is a rupee not spent on food, medicine, or education," said an analyst familiar with Pakistan's IMF negotiations.
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First Published:
May 26, 2025, 14:39 IST