For years, Pakistan has lived with a strange contradiction: a cash‑strapped state that always finds money for its army and historically for jihadist/terror proxies but struggles to fund hospitals, schools and basic food security for its own citizens. In a country surviving on IMF loans and emergency bailouts, the question virtually asks itself: where does the money actually go?
Guns over Bread
Pakistan’s formal defence budget for 2023 – 24 was around 1.804 trillion Pakistani rupees roughly 1.7 percent of GDP and about 12.5 percent of total federal spending. For 2024- 25, that defence allocation has been raised further to about 2.122 trillion rupees, still around 1.7 percent of GDP but higher in absolute terms despite a deep economic crisis.
On paper, the defence share of GDP has fallen from about 2.6 percent in 2018–2020 to 1.7 percent today. But in reality, the rupee amount going to the military keeps rising each year, even as the country’s foreign reserves run dry and Islamabad goes back to the IMF again and again. In 2025, after fresh border tensions with India, the government even proposed a 20 percent jump in defence spending, pushing the budget close to 2 percent of GDP again.
Welfare on Leftovers
Now compare this with what Pakistan spends on its people. Finance Division data shows that in 2023-24, total federal current expenditure on health, education and social protection combined was about 637.7 billion rupees – less than one‑third of the defence budget.
Health got a mere 24.2 billion rupees in the 2023–24 federal budget – a rounding error next to the over 1.8 trillion rupees set aside for defence that year. Education fared slightly better, with around 114 billion rupees, mostly grants to universities and the Higher Education Commission but still nowhere near military funding levels.
Social protection schemes such as the Benazir Income Support Programme and Pakistan Bait‑ul‑Mal together accounted for about 478.7 billion rupees in 2023- 24 significant, but again well below what the state spends on its armed forces. The World Bank’s poverty brief notes that while poverty fell sharply between 2001 and 2015, that progress has stalled or reversed since 2015 due to repeated economic shocks and weak job growth. In simple terms- there is not enough money reaching the poor, even as the security sector remains protected.
FATF Pressure and The Terror Economy
Beyond the official budget there is the darker unofficial story: Pakistan’s long record of tolerating, enabling, and in most cases sponsoring terrorist groups instrumentalised as “strategic assets” against India and now in Afghanistan. This ecosystem required money and for years, Pakistan’s financial system and territory were used to raise and move those funds.
In June 2018, the Financial Action Task Force (FATF) placed Pakistan on its “grey list” for strategic deficiencies in countering terror financing and money laundering, forcing Islamabad into a detailed action plan. FATF repeatedly criticised Pakistan for failing to effectively investigate and prosecute senior leaders of UN‑designated terrorist organisations and for weak control over non‑profits, cross‑border cash movements and informal money transfer systems like hawala.
Analysts have described Pakistan’s response as a “façade of compliance”: high‑profile arrests, cosmetic bans and rebranded outfits for the FATF cameras, while the deeper networks and sympathisers continued to operate. Even after being taken off the grey list in 2022, India and others have pushed to bring Pakistan back under scrutiny, citing evidence that terror‑linked financing channels have not been fully dismantled.
How Terror Financing Hurts Pakistan’s Own Economy
Terror financing in Pakistan has drawn on charity fronts, madrassa donations, smugglers’ routes and sympathetic business or state elements – money that could have gone into legal, productive sectors, but instead fuels terrorism. The result is not just regional instability, but a direct economic hit.
Being on the FATF grey list signals to banks and investors that a country is high‑risk. Studies and official commentary note that such listing typically reduces foreign investment, raises borrowing costs and complicates access to global finance – all problems Pakistan has faced in the last decade. In effect, Pakistan’s tolerance of terror infrastructure became a self‑imposed economic sanction, strangling growth and jobs while the poor paid the price.
Over four decades, Pakistan has turned itself into a central hub of global terrorism, hosting at least 15 major terrorist groups across five categories.
Repeated US State Department reports describe Pakistan as a “safe haven” for organisations such as the Lashkar‑e‑Taiba and Jaish‑e‑Mohammad, whose attacks have killed civilians from Mumbai and Kabul to New York. By deliberately nurturing and tolerating these terror proxies as instruments of state policy, Islamabad has made itself a key enabler of terrorism that spills far beyond South Asia and poisons global security. Pakistan may not be behind every terror incident on the planet, but its role as a long‑standing incubator and safe base for multiple UN and US designated groups makes it directly or indirectly complicit in a significant share of modern terror violence.
Also Read, The Pahalgam Conspiracy: Unmasking Pakistan’s Narrative Warfare
A Country That Can Fund Terror But Not Feed its People
Put together, the pattern is clear. Pakistan is a state that protects its defence budget even in the middle of an economic meltdown, while health and education remain underfunded and social protection is constantly squeezed. At the same time, it has allowed, for decades the rise of terror outfits whose fund‑raising and operations triggered FATF monitoring, diplomatic isolation and investor distrust.
In other words, Pakistan can find billions for tanks, jets and the strategic depth offered by proxies but it struggles to ensure basic nutrition, schooling and medical care for millions of its citizens. A country that can fund terror, but cannot reliably feed its own people, is not a victim of fate, it is a victim of its own choices.
What Would a Course Correction Look Like?
Reversing this reality would require two hard decisions from Islamabad. First, to uproot all terror infrastructure on its soil – no “good” terrorist, no proxy games and permanently seal the financial pipelines that keep these groups alive. Second, to shift serious money from the security state to the welfare state: more for schools, hospitals and targeted poverty programmes, less for military adventurism and opaque “strategic projects”.
Until that happens, Pakistan’s budget will keep answering the question “where does the money go?” in the same way: to the barracks and the networks of power around them not to the hungry family wondering where tomorrow’s meal will come from.
