Is Pakistan afraid of Indian attack? It raises defence budget to... despite being under debt of ..., where from will it get money?

Following a drubbing from India in the recent clashes, Pakistan has increased its defence allocation in Budget 2025-26 to a surprising and unusual level. Finance Minister Muhammad Aurangzeb has allocated Pakistani Rs 2,550 billion for defence expenditure. This is an increase of Rs 428 billion or 20.2% of last year's defence budget. The budget allocation is 14.5% of the Pakistan Budget or 1.97% of the country's total Gross Domestic Product. This rise has not surprised the political experts, considering Islamabad's preoccupation with India, but they are perplexed by the fact that the finance minister has reduced government expenditure by 7% and kept it capped at Rs 17.57 trillion. It does not include Rs 1055 billion allocated for pension of retired servicemen. If this amount is added, the defence allocation will reach 26.20% of total Pakistan Budget for 2025-26. 

Is Pakistan obsessed with India?

Defending the meteoric rise in defence budget, Finance Minister Muhammad Aurangzeb said in the National Assembly in the most unambiguous words that the increase is necessary after 4-day skirmishes with India and terrorism in Balochistan and Khyber Pakhtunkhwa. Aurangzeb has allocated Rs 1,170 billion for Pakistan Army, Rs 520.7 billion for the Pakistan Air Force and Rs 265.97 for the Pakistan Navy. Experts point out that Islamabad has set the narrative that it has taken the clashes to a new height, danger emanating from India has increased and the country needs more funds to equip its armed forces. 

Crores of Pakistanis have no access to water

The hike in defence budget has come at a time when crores of Pakistanis are living below the poverty level, crores have no access to drinking water and lakhs of its children are out of school. The Pakistan government said in its Economic Survey 2024-25 that the public debt stands at a staggering PKR 76 trillion or about  $269 billion. It includes Rs 51.5 trillion in domestic debt and Rs 24.4 trillion in external liabilities, owed to international lenders like the International Monetary Fund and China.

Most expenditure on debt servicing

The burden of the debt can be gauged by the fact that the majority of the government expenditure was on domestic debt, which accounted for Rs 5.78 billion or 66% of the annual allocation of Rs 8.74 trillion. The interest payments on external debt reached Rs 656 billion, equivalent to 63% of the budgeted Rs 1.04 trillion.

External debt

According to the Economic Survey 2024-25, external public debt was recorded at $87.4 billion at the end of March 2025. It increased by around $883 million during FY25 compared to an increase of $2.6bn during the same period of the last fiscal year. 

IMF Loan

According to Dawn, Pakistan’s total external public debt consists of two components: government external debt and debt obtained from the IMF. While government external debt, primarily from China, amounts to $79.13 million, debt from the IMF stands at $8.23 million. The IMF debt consists of the federal government debt of $3.88m and the central bank debt of $4.39m.