Islamabad, Pakistan – Pakistan has increased its defence spending by more than 20 percent – the most substantial hike in a decade – following last month’s military confrontation with neighbouring India.

Presenting the annual federal budget on June 10, Finance Minister Muhammad Aurangzeb proposed an allocation of 2.55 trillion rupees ($9bn) for the country’s three armed services – the army, air force and navy – amounting to 1.97 percent of Pakistan’s gross domestic product (GDP), up from 1.7 percent in the previous budget.

“The security situation in the country is precarious, and the armed forces have rendered commendable service in protecting the borders,” Aurangzeb said during his speech, as India has threatened to carry out strikes if armed groups carry out attacks on India or Indian-administered Kashmir.

But analysts say that Islamabad will need to walk a fine balance in spending more on defence at a time when its fragile economy is under strict oversight from the International Monetary Fund (IMF), and cuts in social sector expenditure could embolden the opposition.

Why has Pakistan raised its defence spending?

On May 7, India carried out missile strikes on what it called “terrorist infrastructure” in Pakistan and Pakistan-administered Kashmir after blaming Islamabad for backing fighters responsible for the killing of 26 people in Indian-administered Kashmir’s Pahalgam town on April 22.

Pakistan denied involvement in the Pahalgam attacks, demanding a “credible, transparent, independent” investigation. Islamabad said innocent civilians were killed in India’s attacks on May 7.

Tensions escalated after the two nuclear-armed neighbours engaged in tit-for-tat missile and drone attacks over four days, primarily targeting each other’s military installations.

By the time a ceasefire was announced by United States President Donald Trump on May 10, in excess of 70 people had been killed – more than 50 in Pakistan and at least 20 in India.

Against that backdrop, Pakistan’s defence hike was expected, say analysts. India, which presented its budget before the conflict, also increased its defence spending to $78.7bn, a 9.5 percent rise from the previous year.

But unlike India, Pakistan has more than a neighbour to keep an eye on: It also confronts pressure from the IMF.  The IMF approved a 37-month, $7bn loan programme for Pakistan last September, its 25th since 1958. The most recent tranche of $1.3bn was released in May this year, a day before the ceasefire between India and Pakistan took place. But in exchange, the global lender has been pressuring Pakistan to streamline its expenditure, reduce subsidies and improve the efficiency of its governance structures.