Pakistan once again choses arms over 'aam aadmi'
Pakistan might have once again made it clear that it will prioritise arms over the
'aam
aadmi
.'
The government of Prime Minister Shehbaz Sharif announced its federal budget for fiscal year 2025-26 on Tuesday, shrinking overall spending by 7% to 17.57 trillion rupees ($62 billion) but raising defence expenditure by a steep 20%.
The Pakistan government presented a budget that allocated 2.55 trillion rupees ($9 billion) for defence spending in FY26, compared to 2.12 trillion in the fiscal year ending this month.
It projected a fiscal deficit of 3.9% against a targeted 5.9% deficit in 2024-25. Inflation was projected at 7.5% and growth at 4.2%.
Pakistan has been back from the brink of bankruptcy and is still not out of danger. Its economy, which broke down after the pandemic, is barely recovering while the country survives on loans.
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Pakistan aims to spur economic growth while allocating funds for a significant defence budget increase, following setbacks from India's retaliatory strikes last month.
It also has to manage remaining within the discipline of its International Monetary Fund (IMF) programme and the uncertainty from new trade tariffs being imposed by the United States, its biggest export market.
Pakistan lags far behind its peers
Pakistan's growth lags far behind the region. In 2024, South Asian countries grew by an average of 5.8% and 6.0% growth is expected in 2025, according to the Asian Development Bank.
Compared to India, Pakistan is light years behind.
Sharif's government has projected 4.2% economic growth in 2025-26, saying it has steadied the economy, which had looked at risk of defaulting on its debts as recently as 2023. Growth this fiscal year is likely to be 2.7%, against an initial target of 3.6% set in the budget last year.
Expansion of the economy should be aided by a sharp drop in the cost of borrowing, the government says, after a succession of interest rate cuts by the central bank. But economists warn that monetary policy alone may not be enough, with fiscal constraints and IMF-mandated reforms still weighing on investment.
Finance Minister Muhammad Aurangzeb said on Monday that he wanted to avoid Pakistan's boom and bust cycles of the past.
Pakistan's struggling economy
Pakistan's debt has increased to PRs 76,000 billion in the first nine months of the current fiscal year, according to the country's economic survey.
Pakistan's foreign-exchange reserves have barely surpassed $15 billion, while India's reserves exceed $688 billion.
The years post covid saw Pakistan's economy unravel. Pakistan, the richest country in South Asia 50 years ago, was reduced to the poorest due to bad governance, military dictatorships and adoption of promoting cross-border terror as state policy. Just as it witnessed political turmoil over the jailing of its former Prime Minister Imran Khan and a virulent insurgency in Balochistan, bankruptcy stared it in the face.
Planning Minister Ahsan Iqbal urged Pakistanis to cut down on tea because the country imported tea and for that it had to borrow money. The statement highlighted the precarious condition of Pakistan's foreign reserves.
Pakistan's $350 billion economy struggled as inflation rose to record high of 38.50% in May 2023, with growth turning negative, reserves shrinking to barely a couple of weeks of controlled imports, and interest rates jumping to 22%. It had reserves of just $3.7 billion remaining. For nearly five years, it remained on the grey list of the Financial Action Task Force (FATF) for terror funding which made access to loans difficult.
The economic crisis was the most prolonged, pushing the country to the brink of a sovereign default in the summer of 2023. With Pakistan's debt-to-GDP ratio in a danger zone of 70%, and between 40% and 50% of government revenues earmarked for interest payments in 2023, only default-stricken Sri Lanka, Ghana and Nigeria were worse off.
What pulled it back from the brink of sovereign default was a $3 billion short-term financial bailout package from the International Monetary Fund (IMF). Long-time allies Saudi Arabia, the UAE and China also rolled over billions of dollars in loans.
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