Pakistan budget 2025-26: Rs2.8 trillion defence budget proposed citing ‘war-like situation’ with India

With Pakistan scheduled to unveil its federal government budget for fiscal year 2025-26, Tola Associates, a tax advisory and consultancy firm, has proposed to raise the defence budget to Rs2.8 trillion, reflecting a 32% increase as compared to the last fiscal, owing to a “war-like situation” with neighbouring India.

The tax advisory firm gave the proposal in its report ‘Budget 2025-26 a rare catalyst for course correction’, released on Saturday.

“The budgeted defence expenditure stood at Rs2,122 billion for FY25 while the actual expenditure till March 2025 was Rs1,424 billion. [However], due to the ongoing war situation with the neighbouring country, defence spending may increase by up to 50% in the Q4FY25,” read the report.

The firms noted that in the previous three years, defence expenditure in the last quarter accounted for 36% of the annual total defence expenditure made throughout the fiscal year.

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“Given the current regional tensions and the need to ensure Pakistan’s defence preparedness, we estimate total defense spending to reach Rs2.4 trillion by June 2025.”

Moreover, it also proposed to enhance the defence budget to Rs2.8 trillion in FY26, reflecting a 32% increase when compared with the outgoing FY’s budget, “due to the war situation with the neighbouring country and the new recruitment of army personnel”.

In its report, Tola said that the upcoming budget serves as a great opportunity for course correction.

“It is a rare catalyst to realign the direction of our economy.” It said that the upcoming budget theme should focus on creating a balance between stability and economic growth.

“Therefore, economic and fiscal reforms should be framed in a manner that puts the economy on a path of steady growth.”

Tola estimate the budget expenditure for FY26 to be around Rs17.2 trillion, lower than the Rs18.9 trillion budgeted by the government in FY25.

The decline in expenditure comes amid an expected reduction in markup payments, which are likely to reduce to Rs7.5 trillion in FY26, compared to Rs9.8 trillion originally budgeted for FY25.

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The tax advisory estimated the federal development budget (PSDP/public sector development programme) at Rs950 billion for FY26, far lower than the Rs1.4 trillion budgeted in FY25.

The report estimated the FBR revenue collection at Rs13.5 trillion for FY26.

“As per our estimates, if the FBR collects around 11.9 trillion in FY25, given our inflation estimates at 10.0% and estimated GDP growth at 3% in the upcoming FY26, then the FBR might collect only Rs13.5 trillion worth of tax revenue.