Pakistan’s Defence Budget Surges 17.6% but Currency Erosion Blunts Procurement Power

For the 2026-2027 fiscal year, the Government of Pakistan has earmarked PKR 3 trillion for defence expenditure, a 17.65% rise over the PKR 2.55 trillion originally allocated in 2025-2026. That previous figure translated to roughly $9.0 billion at prevailing exchange rates. At the current rate, the new allocation equals approximately $10.76 billion, marking the highest defence budget in dollar terms in the country’s history.

Presented in the National Assembly on June 13, 2026, the budget represents the second consecutive double-digit increase following the May 2025 conflict with India. The procurement segment accounts for the bulk of the expansion, climbing nearly 40%.

However, the dollar-denominated value is entirely hostage to the exchange rate, which has deteriorated sharply. In the 2022-2023 period, the rupee traded near 204 to the dollar; it now hovers around 278.75, a loss of roughly one-quarter of its value in just a few years. A dollar today costs about 37% more rupees than it did then. The decline has been volatile: the currency hit a record interbank low of 307.1 in early September 2023 before a market crackdown and a new IMF programme sparked an 11% recovery over subsequent weeks, briefly making it one of the world’s best-performing currencies that autumn. It has since stabilized in the high-270s to mid-280s, a modest rebound that still leaves the rupee far weaker than before the 2022-2023 crisis.

Over a longer horizon, the depreciation is even more pronounced. In 2016-2017, the rupee traded at approximately 105 to the dollar, meaning it has shed nearly two-thirds of its value over the past decade. A dollar now commands more than 2.5 times the rupees it did then. This is critical because the majority of Pakistan’s procurement—fighters, submarines, engines, sensors, and inputs for indigenous programmes—is priced in foreign currency. Consequently, the nominal increase in rupees does not equate to a proportional gain in purchasing power.

Assessing the Budget in Dollar Terms

Since the rupee-denominated defence budget rises almost annually, the headline figure alone is an unreliable gauge of procurement capacity. Because the bulk of platform acquisition is ultimately settled in foreign currency, the dollar valuation must be weighed alongside the local-currency allocation to assess true spending power.

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