Operation Sindore: Can Pakistan financially bear the expenses of a struggle with India because stress increases? Here is a reality check
The tensions of India and Pakistan are increasing and even the Indian armed forces gave a tough competition, the question is whether Pakistan can also struggle with India on a large scale? Pakistan is facing serious economic challenges – and its delicate recovery on the back of IMF and World Bank Bailout and debt rollover is in serious threat if it opt for continuing military tension with India.Pakistan’s economy, which has shown minor signs of improvement under the $ 7 billion IMF program, poses serious instability seriously. Its current economic condition is uncertain. Experts believe that for Pakistan, the results of a constant military engagement would be economically more harmful than India, which will make any other enmity particularly risky.India is the fifth largest economy in the world in nominal GDP terms. It is also the fastest growing major economy in the world. In contrast, Pakistan does not rank even among the top 40 economies in the world.In 2023, Pakistan was almost bankrupt back and if it was not for assistance from the IMF, World Bank and some friendly countries, it would have collapsed. It has recovered since then, but only!According to a column in FT, by December 2024, Pakistan’s external loan exceeded $ 131 billion, while its foreign-bail reserves, about 10 billion dollars, provided coverage for only three months of imports.Comparison of major economic indicators – GDP, GDP growth, foreign exchange reserves, stock market capitalization, inflation, FDI – presents a cool picture for Pakistan.India is ready to become the world’s 4th largest economy, its GDP size is 10.5 times the size of Pakistan. Foreign exchange reserves are 35.52 times Pakistan.India’s crippled economic explosionThe Pakistani economy is sensitive to various threats. The agricultural sector, which appoints about 40 percent of the workforce, may face significant disruption after India’s decision to suspend the 1960 Indus Waters Treaty. Its economic stability is compromised since the political upheaval and 2022 floods, which makes it unsafe for additional challenges. Any major crisis can potentially give rise to economic breakdown and widespread difficulty, the FT column warns.India has also banned all imports from Pakistan, either through direct shipment, or through routes, postal and parcel services of the third country. Government’s measures extend to maritime activities, prevent Pakistan-regulated ships from reaching Indian ports, while Indian ships prevent ships from entering Pakistani ports, increasing tension in diplomatic relations.Also read Real economic shock for Pakistan! India entered $ 500 million Pakistani goods through third countries“This comprehensive restriction, including indirect imports, will enable custom authorities to prevent custom officials from entering India,” an official told TOI.Important economic impact on Pakistan is likely to appear through a ban on ‘indirect’ imports. Although direct bilateral trade is limited, the amount of trade done through third countries is particularly sufficient.Reports suggest that items, including dried fruits and chemicals of $ 500 million, are currently entering India through third countries. An official note is that an important part of $ 500 million in exports, which was previously sent directly from Pakistan to India, now reaches through alternative routes.IMF bailout in danger?India is also looking to cut Pakistan’s lifeline – it is dependent on the ongoing IMF bailout. India is expected to compete with the proposed $ 1.3 billion IMF loans for Pakistan at the upcoming board meeting.The IMF Board will review a new $ 1.3 billion for Pakistan on 9 May under its climate flexibility loan program. The board will also examine the current $ 7 billion bailout package, including the progress of policy commitments.In July 2024, Pakistan and IMF agreed for a $ 7 billion package under extended fund facility. Pakistan was required to strengthen macroeconomic stability to Pakistan, addressing core structural challenges and executing effective policies and reforms to create conditions for permanent and inclusive development.$ 7 billion is being discouraged by IMF in installments, requiring board approval for the release of the next $ 1 billion installment.Shining warning signalInvestigating a reality to Pakistan, Global Credit rating Moody’s has said that increasing India-Pakistan stress will lead to weight on subsequent economic growth. Moody’s warned, “The continuous increase in tension with India will increase Pakistan’s development and obstruct the ongoing fiscal consolidation of the government, which will return Pakistan’s progress to achieve macroeconomic stability.”Moody’s has stated that Pakistan’s macroeconomic conditions are improving, increasing with increase, growing inflation and exotic-intelligence reserves are increasing amidst continuous progress in the IMF program. However, it can derail with a steady increase in stress. Moody’s stated that it may also bring pressure on Pakistan’s external funding and its foreign exchange reserves, which is necessary to meet its external loan payment needs for the next few years.The S&P Global Rating on Thursday indicated that the ongoing conflict between India and Pakistan has increased the risk for the credit metrics of both nations, if stress increases with potential sovereign credit support deteriorating.Also read After the Indus Waters Treaty suspension, India starts work to promote reservoir holding capacity in hydroelectric projects in J&KS&P estimates India’s constant strong economic expansion, which provides convenience of progressive fiscal enhancement. It also hopes that Pakistan’s administration will be dedicated to economic reform and fiscal stability. The rating agency believes that neither the nation has benefited from extended tensions, given its respective economic priorities.The S&P stated that any continuous military engagement disrupted Pakistan’s progress in external and fiscal indicators, possibly by reducing its path towards comprehensive economic stability, S&P said.Echoing a sense of fear, Pakistan’s stock market has crashed badly since the April 22 Pahalgam attack. KSE 100 has fallen by about 9% in the last two days in response to Operation Sindoor in India.
Pakistan Stock Market Karachi 100 Index from 22 April
Indian stock markets on the other hand have been stable.Already in the delicate economic state, military conflicts can, potentially restore access to international capital markets and bilateral funding sources for Pakistan, intensify debt servicing difficulties and put pressure on the store.The ongoing IMF program may also face disruption due to increased geopolitical stress.Pakistan’s growing dependence on Chinese financial aid, including the recent $ 2 billion loan rollover from Beijing, depends rapidly on China. It can stress its relations with western countries, especially the United States, said the FT report.Given these circumstances, the message for Pakistan is loud and clear – only if it chooses to hear – Islamabad should prefer to avoid any major growth to ensure that its economy survives!
