Washington’s concerns over Pakistan’s fiscal transparency have gained fresh significance after Islamabad raised defence spending to Rs3 trillion for 2026-27, while questions persist over parliamentary scrutiny of military and intelligence expenditure.
The US State Department’s 2025 Fiscal Transparency Report identified weaknesses in the way Pakistan discloses and oversees sensitive spending. It said military and intelligence budgets were not subject to adequate parliamentary or civilian public oversight and called for stronger scrutiny of those expenditures.
The assessment also highlighted limited public information about government debt obligations, including liabilities linked to major state-owned enterprises. It questioned delays in publishing the executive budget proposal, arguing that timely disclosure is necessary for meaningful parliamentary debate and broader public scrutiny.
Those concerns are attracting renewed attention after Pakistan sharply increased its defence allocation for the financial year that began on July 1. The federal budget provides Rs3 trillion for defence services, compared with an original allocation of Rs2.55 trillion and revised spending of nearly Rs2.584 trillion in 2025-26. Defence affairs and services, which include defence administration, have been allocated about Rs3.011 trillion.
The increase amounts to roughly 18 per cent over the previous budgeted figure. Employee-related military expenditure is set at about Rs967.5 billion, operating costs at Rs743.5 billion and expenditure on physical assets at Rs925.8 billion. Another Rs363.2 billion has been earmarked for civil works. The particularly large increase in spending on physical assets points to an emphasis on equipment and military capabilities.
Finance Minister Muhammad Aurangzeb presented an Rs18.77 trillion federal budget in June, with the government arguing that greater security expenditure was required because of heightened regional uncertainty. At the same time, federal development spending was restricted to Rs1 trillion as Islamabad sought to meet demanding fiscal targets under its $7 billion International Monetary Fund programme.
Pakistan is targeting economic growth of 4 per cent and inflation of 8.2 per cent in 2026-27. The budget projects an overall fiscal deficit of Rs5.23 trillion, equivalent to about 3.6 per cent of gross domestic product, after taking into account an expected provincial surplus. Tax revenue has been targeted at Rs15.26 trillion.
The US criticism is therefore directed less at the absolute size of the military allocation than at the mechanisms surrounding it. Washington’s fiscal-transparency framework examines whether governments publish budgets promptly, provide comprehensive debt information, maintain independent auditing and ensure that military and intelligence spending faces legislative or civilian scrutiny.
Pakistan received a mixed assessment rather than an across-the-board criticism. Its enacted budget and year-end fiscal reports were considered readily accessible, while budget information was regarded as generally reliable and subject to audit. The country’s supreme audit institution was also assessed as meeting international standards of independence, with its findings made publicly available within an acceptable period.
The State Department also found that Pakistan had established procedures governing natural-resource extraction contracts and licences and made basic information about awards publicly available. The deficiencies centred primarily on military and intelligence oversight, debt disclosure and the timing of executive budget documents.
The debate carries added weight because debt servicing remains Pakistan’s largest fiscal constraint. The 2026-27 budget provides more than Rs8.05 trillion for debt servicing, including almost Rs6.98 trillion for domestic debt and about Rs1.07 trillion for foreign debt. This is more than two-and-a-half times the direct defence-services allocation and substantially limits room for development and social expenditure.
Islamabad has simultaneously sought to strengthen the formal architecture of public financial management. Its 2026-27 Annual Budget Statement includes declarations on contingent liabilities, fiscal risks, medium-term budgeting and tax expenditure. The Finance Division says these measures are intended to improve transparency, accountability and oversight of public finances.
The unresolved issue is whether the same degree of disclosure extends to areas considered sensitive for national security. Pakistan’s defence budget is presented to Parliament through broad expenditure categories, but the US assessment argues that military and intelligence spending requires stronger parliamentary or civilian oversight.
