Pakistan’s Federal Budget FY 2026–27: Same Circus, Bigger Military, Smaller Future |
This paper presents a critical analysis of Pakistan’s Federal Budget for FY 2026–27, which carries a total outlay of Rs 18.771 trillion ($67 billion). The analysis examines key budget allocations, including debt servicing (42.9% of expenditure), defence spending (Rs 3 trillion), and comparatively inadequate allocations for education (Rs 46 billion) and health (Rs 25.1 billion). The paper investigates hidden military expenses, the freeze on new development projects, and the regressive taxation policies that burden ordinary citizens while exempting six industries. Through comprehensive data analysis and examination of public budget documents, this study demonstrates that Pakistan’s budget perpetuates institutional self-perpetuation, prioritizing military spending and debt servicing while constraining investments in human capital development and essential public services.
Introduction: The Third Budget, Same Broken Priorities
The FY 2026–27 federal budget carries a total outlay of Rs 18.771 trillion ($67 billion), up from Rs 17.57 trillion the previous year. On the surface, this looks like an expansion. Dig one centimeter beneath the surface, and you find the same suffocating structure; nearly half the budget eaten by debt interest, the military handed the single largest institutional allocation, development spending frozen at a paltry Rs 1 trillion, and health and education receiving crumbs while generals receive upgrades. The NEC, the National Economic Council, actually slashed the overall development budget by 25 percent just days before the budget was presented, with no new development projects approved except for the interior and defence ministries. (Dawn, June 2026)
This paper dissects Pakistan’s FY 2026–27 budget with zero diplomatic courtesy. Every claim is backed by a reference. Every number is sourced. And the conclusion is one that no government minister will state openly but that every citizen living through Pakistan’s collapsing public services already knows: this country is governed for its military, its creditors, and its elite, not for the 240 million people paying the price.
1- The Budget at a Glance – The Numbers That Indict
Total Outlay: Rs 18.771 trillion ($67 billion)
Debt Servicing (Interest Payments): Rs 8.054 trillion, which is 42.9% of total expenditure
Defence Budget (official): Rs 3 trillion, which is 15.98% of total expenditure
Military Pensions (separate from defence): Rs 822 billion. Civil Pensions: Rs 272 billion, thus total Pensions: Rs 1.169 trillion
Federal PSDP (Development): Rs 1.05 trillion
Health (ADP allocation): Rs 25.1 billion
Higher Education and Research (ADP): Rs 46 billion
BISP (Social Protection): Rs 838 billion ( 17%)
Subsidies: Rs 1.091 trillion
FBR Tax Target: Rs 15.264 trillion
GDP Growth Target: 4% | Inflation Target: 8.2%
(Sources: Dunya News Budget Documents; Bloom Pakistan, June 2026; Business Recorder, June 2026)
Take a moment with those numbers. Pakistan is spending Rs 8.054 trillion servicing debt and Rs 25.1 billion on federal health development. That is a ratio of 321 to 1. For every single rupee the federal government invests in building new hospitals or health infrastructure, it pays Rs 321 to its creditors. The military budget alone is 120 times larger than the federal health development allocation. These are not misfortunes. These are choices deliberate, defended, and repeated year after year. (ProPakistani Budget Live, June 2026)
2- Defence – Rs 3 Trillion and Climbing, With More Hidden Beneath
The budget allocated to the defence sector in FY 2026-27 is Rs 3.01 trillion, marking an increase of 17.7 percent over last year’s allocation of Rs 2.55 trillion. This is for the third consecutive year that the defence budget has seen double-digit increases: Rs 2.12 trillion in FY 2024-25, Rs 2.55 trillion in FY 2025-26, and now Rs 3 trillion in FY 2026-27. Within two years, Pakistan’s official defence budget has risen by Rs 880 billion, an increase of 41.5 percent. The federal budget for health development has, meanwhile, been slashed. (Business Recorder Defence Budget, June 2026)
The Official Numbers Are Just the Beginning
The Rs 3 trillion defence budget figure does not tell us the whole story. There are, in fact, several other military expenses within the official documents that are accounted for separately as follows:
Military pensions: Rs 822 billion, rising from Rs 742 billion last year, showing an increase of 10.8 percent. These are lumped together in the category of ‘total pensions’ (Rs 1.169 trillion), thereby staying out of the official defence budget figures. (ARY News Defence Budget, June 2026)
Expenses of employee defence: Rs 967 billion; the increase is from the revised figure of Rs 851 billion for the cost of salaries that are kept undisclosed in the defence budget. Salary disbursements to military personnel have been lumped under ‘General Public Services – Staff Salaries,’ thereby making an independent audit of the full salary expenditure incurred on military personnel impossible for citizens and independent scholars alike. (ARY News Defence Budget, June 2026)
Operating expenses: Rs 743 billion; Administrative costs: Rs 10.9 billion; Tangible assets (procurement of military hardware): have been lumped into the Rs 3 trillion without any breakup being made public. Apart from this, the Pakistan Atomic Energy Commission (PAEC) was granted Rs 40.66 billion in the PSDP, almost double last year’s Rs 22.42 billion, while SUPARCO was allocated Rs 11.57 billion in the PSDP. (Business Recorder Defence Budget, June 2026)
Total these up: defence budget (Rs 3 trillion) military pensions (Rs 822 billion) concealed military salary payments under general services PAEC (Rs 40.66 billion) SUPARCO (Rs 11.57 billion) Armed Forces educational institutions in cantonments (Rs 22.96 billion). What we come up with is that the real military budget in Pakistan’s fiscal year 2026–27 is likely to be between Rs 4.5 and 5 trillion, representing a proportion of around 24 to 27 percent of the total budget of the Pakistani government. This is clearly the budget of a state whose main raison d’etre is its army.
What Does Rs 3 Trillion Actually Buy?
What does this Rs 3 trillion defence budget buy, really? It is actually Rs 3,000 billion. Federal ADP for health is Rs 25.1 billion, and federal ADP for higher education is Rs 46 billion, adding up to Rs 71.1 billion. This means that the defence budget is over 42 times as large as the total budget allocation of the Pakistani government for health and higher education. As acknowledged by the Prime Minister himself at the NEC meeting, “the biggest challenge is strengthening defence.” (Dawn NEC/PSDP, June 2026) A revealing confession. Not poverty. Not illiteracy. Not malnutrition. The biggest challenge is defence.
Aurangzeb, Finance Minister, also mentioned defence pacts between Pakistan and Saudi Arabia, where military expenses were justified on the grounds of earning foreign currency through arms sales. This is the new layer added to the old ‘regional threats’ excuse; the military is now also an export industry. The unspoken reality is that defence exports by Pakistan are just a small portion of its defence imports, and there has never been an arms deal that built a school in Baluchistan. (24NewsHD Budget Speech, June 2026)
3- Education – Still Drowning, Now With Less Funding
Pakistan’s education disaster did not happen overnight, but each new budget has made the situation more serious. The allocation towards Higher Education and Research under the ADP for FY 26-27 is Rs. 46 billion, marginally better than last year when it was Rs. 34.9 billion. HEC’s recurrent funding for salaries and operations will be frozen again despite the increased number of universities and students over the past years. (Business Recorder, June 2026; ProPakistani: HEC Development Spending)
The Context: Structural Crisis Getting Worse
To see how inadequate anything less than an enormous hike would have been in terms of education, consider the situation in which Pakistan finds itself. Education expenditure has gone down from 2% of GDP in 2018 to 0.8% of GDP in FY 25. There are around 25.37 million to 26 million children out of school in the country. Pakistan’s literacy rate is at 60.6%, while female literacy is only 52.8%. In Balochistan, three-quarters of girls are out of school. UNESCO and the UN’s Incheon Declaration recommend 4-6% of GDP on education, whereas Pakistan has just one-fifth of that amount. (Save the Children, June 2025; Minute Mirror Education Budget, 2026)
The education experts pointed out that at least a goal of Rs 3 to 3.5 trillion could be expected to be........