Pakistan has recently raised its defence spending by over 20% following border clashes with India, marking the most significant increase in a decade. This decision came after Finance Minister Muhammad Aurangzeb proposed an allocation of 2.55 trillion rupees ($9bn) for the armed services, amounting to 1.97% of the country's GDP.

The security situation in the region has been tense, prompting the need for increased military expenditure. However, this move comes at a time when Pakistan's economy heavily relies on loans from the International Monetary Fund (IMF).

Reasons Behind the Defence Budget Hike

India's missile strikes on alleged terrorist infrastructure in Pakistan and Pakistan-administered Kashmir in May led to escalating tensions between the two nuclear-armed nations. This conflict resulted in a tit-for-tat exchange of attacks, causing casualties on both sides.

As a response to the heightened security threats, Pakistan decided to increase its defence budget. This move was expected, especially after India had already raised its defence spending earlier.

Challenges and Implications

Despite the need for increased military expenditure, Pakistan faces challenges in balancing its budget. With a significant portion of the budget allocated to debt servicing, the government aims to expand the tax base and reduce subsidies to raise public revenue.

The opposition has criticized the budget, labeling it as 'anti-people' and favoring the elite. While the defence budget increase is substantial, it aligns with the global trend of rising military expenditure.

Stabilization vs. Transformation

Recent years have been tumultuous for Pakistan's economy, with foreign reserves hitting a low in 2023. However, with IMF deals in place, the country's economic indicators are showing signs of stabilization.

Although the budget focuses on short-term stabilisation, experts argue that long-term structural reforms are necessary for sustainable growth. The IMF's emphasis on stability may hinder Pakistan's progress towards comprehensive transformation.