Islamabad: Pakistan will raise defence spending by a steep 20% but will slash overall federal expenditure for fiscal 2025-26 by a hefty 7% to 17.57 trillion rupees ($62 billion).

The budget presented on Tuesday by Prime Minister Shehbaz Sharif's government allocated 2.55 trillion rupees ($9 billion) to defence in July-June 2025-26, up from 2.12 trillion.

It projected a deficit of 3.9% of GDP against the 5.9% targeted for 2024-25. Inflation was projected at 7.5% and growth at 4.2%.

Pakistan wants to kickstart growth while boosting its defences after the worst fighting with its neighbour in nearly three decades - which it has cast as a victory - and meeting the strictures of an International Monetary Fund finance programme.

"After defeating India in a conventional war, now we have to surpass it in the economic field," Sharif said in a statement.

Pakistan must also contend with the uncertainty of new import tariffs being imposed by the United States, its biggest export market.