Can Shehbaz Sharif's bankrupt Pakistan afford to have war with India? Reports claim tensions with New Delhi will destroy Islamabad, it's economy will...

India’s strong diplomatic actions following the deadly terror attack in Jammu and Kashmir’s Pahalgam has pushed Pakistan into deeper economic trouble. The April 22 attack at Baisaran meadow, a popular tourist spot also called “Mini Switzerland,” killed 26 people, mostly tourists.

In response, India suspended the Indus Waters Treaty, ended visa exemptions under SAARC for Pakistanis, expelled Pakistani military attaches, reduced diplomatic staff, and shut the Attari check post, allowing legal travel only until May 1. These moves have further strained relations and worsened Pakistan’s already weak economy.

The Pakistan Stock Exchange (PSX) reacted sharply. On April 24, the KSE-100 index crashed by 2,500 points, over 2%, just minutes after markets opened. Although it recovered slightly later in the day, it still ended 1,532 points lower. This was the second day of losses, as investors also reacted to the IMF lowering Pakistan’s GDP growth forecast to 2.6% for 2025. The Asian Development Bank had also revised it to 2.5%.

Pakistan’s agriculture sector could face a major blow due to the suspension of the Indus Waters Treaty. The treaty, signed in 1960, divides river waters between India and Pakistan. India, as the upstream country, holds significant control. Experts say this move could badly hurt Pakistani crops like wheat, rice, and cotton — key exports — as 90% of its food crops rely on water from this river system.

Pakistan’s economy was already in crisis. With inflation peaking at 38.5% in 2023 and foreign reserves falling to just $3.7 billion, the country had to borrow even for tea imports. The debt-to-GDP ratio reached 70%, and interest payments consumed nearly half of government income.

Although Pakistan recently reached a deal with the IMF for a new $1.3 billion loan, its external debt repayment needs for 2025 stand at over $22 billion.

In response to India’s actions, Prime Minister Shehbaz Sharif called a National Security Committee meeting to discuss next steps. As tensions rise, any military escalation could worsen Pakistan’s fragile economy and lead to further instability.