Pakistan Raises Defence Budget by Nearly 18%, Though Currency Depreciation Limits Real Spending Power
Summary
Pakistan's government has allocated PKR 3 trillion for defence in its 2026-2027 fiscal year budget, representing a 17.65% increase over the previous year's allocation and translating to approximately $10.76 billion USD at current exchange rates — the highest defence budget Pakistan has ever recorded in dollar terms. This marks the second consecutive double-digit defence budget increase following the May 2025 military conflict with India, with procurement spending seeing the sharpest rise at nearly 40%. However, the true purchasing power of this increase is significantly undermined by the Pakistani Rupee's substantial long-term depreciation, with the currency having lost roughly two-thirds of its value against the US dollar over the past decade since 2016-2017. While the PKR partially recovered from its historic low of 307.1 to the dollar in September 2023 and has since stabilized in the high-270s to mid-280s range, it remains far weaker than pre-crisis levels. Since the majority of Pakistan's major defence procurement — including fighter jets, submarines, engines, and sensors — is priced in foreign currency, the nominal PKR budget increase does not accurately reflect a proportional gain in actual military procurement capacity.
Key Takeaways
- 1. Pakistan's defence budget has recorded back-to-back double-digit increases following the May 2025 conflict with India, signalling a sustained strategic shift toward higher military expenditure
- 2. The nearly 40% surge in the procurement portion of the budget suggests Pakistan is prioritizing acquisition of new platforms and military hardware over operational or administrative costs
- 3. Currency depreciation severely erodes real purchasing power, as the PKR has lost approximately two-thirds of its value against the USD over the past decade, meaning nominal budget growth overstates actual capability gains
- 4. For assessing true defence procurement capacity, USD-denominated analysis is essential since Pakistan's major acquisitions — fighters, submarines, engines, and advanced sensors — are priced in foreign currency
- 5. Pakistan's fiscal vulnerability to exchange rate fluctuations represents a structural constraint on its long-term military modernization ambitions, particularly for high-value foreign platform acquisitions