The Pakistan navy, the smallest of its three services, has been constrained by limited funds, few naval platforms received in the distribution of the Royal Indian Navy and its lower importance in the national security strategy. Being larger than the Navy and Air Force put together, the Pakistan Army receives the maximum share of defence expenditure. Further, the major threat to Pakistan is perceived as coming from India. A larger allocation, therefore, for the Pakistan army is logical.

Unlike India, Pakistan does not publish any service-wise distribution of its defence budget. Due to non-availability of details of the actual allocations for the navy, it is difficult to ascertain its trends. However, some estimates do indicate that, on average, Pakistan’s naval budget has remained below ten percent of the total defence allocations, except in 1965-66 and 1969-70 when the navy obtained 16 percent of the defence allocations. This increase was designed to fund the procurement of submarines (Daphne and Agosta) from France. However, in the late 1990s, the Pakistan Navy’s budget hovered around 16-17 percent of the total budget. In an interview to Jane’s Defence Weekly, Admiral Abdul Aziz Mirza, the former Pakistan Navy Chief, noted that in 2002 the Pakistan navy received 25 percent of the country’s $US 2.3 billion defence budget.

During 1992-99, Pakistan spent a total of $US 2705 million on military purchases. The navy was the major beneficiary and received the largest allocation of $US 1650 million for procurement ($US 1300 million for three Agosta 90 B submarines and $US 350 million for three Eridian class minesweepers) and $US 150 for modernization of six UK Type-21 frigates. This enhanced interest in the navy was not due to any sudden appreciation of naval requirements. In fact, Admiral Mansoor ul Haq, the then Pakistan Navy Chief, lobbied and convinced the political leadership and the other two services of the Navy’s urgent needs. He was later charged with receiving kickbacks on major naval purchases and extradited from the US to face trial at home.  The Pakistan government has approved plans now to acquire four Jiangwei-II frigates from China Shipbuilding and Trading Company at a total cost of $US 700-800 million.

Pakistan's real defence expenditure remains shrouded in secrecy.  Some areas that are not reflected are military pensions, costs of acquisition of major weapon systems, earnings from export of arms and ammunition from ordnance factories and defence credits from various Muslim countries.  For instance the initial payment of $ 1.4 billion for the first 40 F-16 aircraft from the US was reportedly made with Saudi money. It is also believed that nearly sixty percent of the weapons and military equipment supplied to the Afghan Mujahideen by the US between 1981 and 1989 was retained/siphoned off in Pakistan.  Besides, there are many reports that some rich Arabs have contributed liberally for arms purchases.

Major weapon system acquisitions are not made from the defence budget. These are provided from “off-budget financingâ€Â