ISLAMABAD, Jun. 10 (Reuters) - Pakistan will raise defence spending by a steep 20% after a military clash with its old enemy India last month, 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%.

The South Asian nation 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.

The clash with India was sparked in April by Islamists who killed 26 men in an attack on Hindu tourists in Indian Kashmir.

Islamabad denied New Delhi's allegation that the militants were backed by Pakistan.

Four days of fighting featured jets, missiles, drones and artillery.

Photo from Reuters