As tensions spiral along the India-Pakistan border following the Pahalgam attack and India’s aggressive countermeasures under Operation Sindoor, the spotlight is now firmly on Islamabad’s economic vulnerabilities, and the picture is grim.
While Indian forces intensify military preparedness, deploying advanced weaponry and warships along the LoC, Pakistan is confronting a strategic dilemma: Can its fragile economy endure a drawn-out conflict with the world’s fifth-largest economy?
An Uneven Economic Battleground
This is a powerful economic imbalance that is the source of the conflict. The IMF puts India’s economy over 10 times larger than that of Pakistan at $3.9 trillion, with Pakistan’s GDP at just $373 billion. India has foreign exchange reserves in excess of $653 billion compared to Pakistan’s vulnerable $18.3 billion, which will barely cover the imports for three months.
Pakistan’s modest recovery, enabled by a $7 billion IMF bailout package in 2024, now hangs by a thread. The country’s external debt crossed $131 billion last December, while inflation continues to hover at a painful 23.4%, compared to India’s controlled 4.67%.
Operation Sindoor: Economic Frontlines Open
India has begun leveraging economic tools alongside military deterrence. Key measures include:
- Full suspension of imports from Pakistan, including those routed through third countries.
- Denial of port access to Pakistan-flagged ships and reciprocal restrictions on Indian vessels.
- Pushback against IMF support, with India set to challenge a proposed $1.3 billion climate resilience loan to Pakistan during the Fund’s board review.
An Indian official confirmed to TOI that a significant volume of Pakistani goods including dry fruits and chemicals valued at approximately $500 million, previously entered India through rerouted trade, which will now be blocked through strengthened customs surveillance.
Markets React: Panic in Karachi, Calm in Mumbai
Financial indicators underscore the diverging trajectories of the two nations. Since April 22, Pakistan’s KSE-100 index has dropped nearly 9%, shaken by fears of prolonged military engagement. Meanwhile, Indian markets remain largely steady, reflecting investor confidence in economic resilience despite heightened tensions.
Moody’s and S&P Global have both issued cautionary assessments. While S&P expects India to maintain its growth momentum, it warns that Pakistan’s access to international financing could be severely compromised, threatening the continuation of IMF-backed reforms and pushing Islamabad closer to default.
Water Wars and Strategic Leverage
India has also put the Indus Waters Treaty on hold, a step with far-reaching long-term implications for Pakistan’s agrarian economy, which has more than 40% of its workforce employed. Infrastructure projects are in progress in Jammu & Kashmir to enhance India’s dominance over water flow, introducing another dimension to India’s strategic positioning.
China Factor: Debt Diplomacy Deepens
With restricted Western lending, Pakistan has become increasingly reliant on China, which granted it a $2 billion debt relief. Nevertheless, experts state this increased dependency may risk Islamabad’s autonomy as well as complicate its foreign choices.
A Costly Gamble
As operations under Operation Sindoor go on, analysts are in consensus that Pakistan’s economic fundamentals are not geared for long-term confrontation. A Financial Times report noted that even a brief flare-up would jeopardize its IMF programme and worsen domestic suffering.
India, for its part, appears to be playing a long game using both military might and economic pressure to isolate Islamabad diplomatically and financially. And with global credit agencies sounding the alarm, the next few weeks could determine whether Pakistan blinks or braces for economic collapse.
Also Read: India’s War Films, Trademarks & the Curious Case of Operation Sindoor
