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KARACHI: Pakistan on Tuesday announced its federal budget for fiscal year 2025-26 with a total outlay of Rs17.57 trillion ($62 billion), an overall decrease in spending by 7%, but hiked the defense expenditure by 20% following a recent military conflict with nuclear-armed neighbor India.

Finance minister Muhammad Aurangzeb presented a budget that allocated Rs2.55 trillion ($9 billion) for defense spending in FY26, compared to Rs2.12 trillion in the fiscal year ending this month.

“This budget is being presented at a very important and historic moment when the nation in recent days showed extraordinary unity, determination and strength,” Aurangzeb said, referring to the recent military confrontation with India, in which the militaries of the two nations exchanged drone, missile and artillery attacks, with a combined 70 people killed on both sides. 

“With this same national unity and determination, we should turn our focus to our economic strength, growth and welfare,” the finance minister said. 

“The spirit with which we protected and strengthened our national sovereignty, we need to ensure our financial security and the welfare of the people with the same unity and strength.”

The military clash between India and Pakistan was sparked by an April attack by assailants who targeted Hindu tourists in Indian Kashmir in April, killing 26 men. New Delhi blamed the attack on militants backed by Pakistan, a charge denied by Islamabad. The two sides used fighter jets, missiles, drones and artillery against each other before agreeing to a ceasefire on May 10 after four days of fighting, their worst in nearly three decades.

Here are some of the key highlights from the country’s 2025-26 budget:

GDP/DEFICIT
* GDP growth projected to be 4.2 percent
* Nominal GDP seen at 129.57 trillion rupees
* Fiscal deficit expected to be 3.9 percent of GDP
* Targets primary surplus of 2.4 percent of GDP

INFLATION
* Targets inflation at 7.5 percent

EXPENDITURE
* Total spending seen at 17.57 trillion rupees
* Defense expenditure of 2.55 trillion rupees targeted
* Interest payments projected at 8.21 trillion rupees

REVENUE
* Total gross revenue of 19.28 trillion rupees targeted
* Targets total tax revenue of 14.1 trillion rupees
* Aiming for net external receipts of 106 billion rupees 

($1 = 282.0000 Pakistani rupees) 

- With inputs from Reuters

ISLAMABAD: The Pakistan Stock Market witnessed a range-bound session today, Tuesday, with the index fluctuating within a narrow band amid uncertainty surrounding the budget announcement. 

Pakistan will unveil its annual federal budget for the coming fiscal year on Tuesday evening, seeking to kickstart growth while finding resources for an expected hike in defense expenditure following a military conflict with India last month, the worst between the nuclear-armed neighbors in decades. 

Islamabad will also have to contend with remaining within the discipline of its International Monetary Fund program and the uncertainty from new trade tariffs being imposed by the United States, its biggest export market.

“The index recorded an intraday high of 970 points and a low of 51 points, eventually closing at 122,024 — gaining 383 points or 0.32 percent,” brokerage house Topline Securities said in its daily market review. 

“Market participation remained healthy, with total traded volume reaching 591 million shares and a traded value of PKR 21 billion.”

Media reports say the government is likely to present a 17.6 trillion rupee ($62.45 billion) budget for the fiscal year beginning July 1, down 6.7 percent from this fiscal year. It has projected a fiscal deficit of 4.8 percent of GDP, against a targeted 5.9 percent deficit in 2024-25, the reports say.

Analysts said they expect an increase of around 20 percent in the defense budget, likely offset by cuts in development spending.

Pakistan allocated 2.1 trillion Pakistani rupees($7.45 billion) for defense in the outgoing fiscal year, including $2 billion for equipment and other assets. An additional 563 billion rupees ($1.99 billion) was set aside for military pensions, which are not counted within the official defense budget.

The government of Pakistani Prime Minister Shehbaz Sharif has projected 4.2 percent 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 percent, against an initial target of 3.6 percent set in the budget last year.

Pakistan’s growth lags far behind the region. In 2024, South Asian countries grew by an average of 5.8 percent and 6.0 percent growth is expected in 2025, according to the Asian Development Bank.

With inputs from Reuters