Pakistan’s Close Call: Can Pakistan Afford a War With India?

Tensions between India and Pakistan have once again surged, following a terror attack in Pahalgam allegedly orchestrated by operatives trained in Pakistan. India’s swift and powerful retaliatory measures have raised fears of a potential military conflict. However, while war drums beat louder, the reality on the ground tells a different story: Pakistan, with its fragile economy hanging by a thread, may not be able to afford any form of conflict with India.

With deep-rooted economic woes, dependency on foreign loans, and political instability, Pakistan finds itself in a precarious position that could worsen dramatically if tensions escalate into an armed confrontation.

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India-Pakistan Relations: A Sharp Decline

The terror attack in Pahalgam, carried out by two operatives reportedly trained in Pakistan, has plunged Indo-Pakistani relations to a new low. India, determined to send a strong message, took a series of retaliatory actions:

Suspension of the Indus Water Treaty: A historic 1960 agreement between India and Pakistan, brokered by the World Bank, ensuring the sharing of river waters.
Closure of the Integrated Check Post at Attari: Effectively severing a crucial trade and transit link.
Revocation of the SAARC Visa Exemption Scheme (SVES): Pakistani holders of these visas were given only 48 hours to exit India.
Capping diplomatic staff: Reducing the number of diplomats on each side from 55 to just 30 by May 1.

These measures, unprecedented in their scope and speed, signal India’s readiness to escalate the situation diplomatically and possibly militarily.

Indian Defence Minister Rajnath Singh had earlier assured the country of a “loud and clear” response to any act of terrorism. His words are now being backed by actions that leave little room for misinterpretation. Meanwhile, Pakistan’s response has been equally confrontational, with Islamabad issuing a notification for surface-to-surface missile tests near its coastline, suggesting its armed forces are on high alert.

The ominous war clouds are gathering, but beyond the nationalist rhetoric and military posturing, a stark economic reality looms for Pakistan: it simply cannot afford a war.

Pakistan’s Military Posture: Bark Without the Bite?

Pakistan’s military establishment, historically influential in the country’s political landscape, appears to be gearing up for a confrontation. Recent speeches by General Asim Munir, the Pakistani army chief, emphasized Pakistan’s Islamist ideology and vocal support for the Kashmir cause. Such rhetoric resonates with segments of the population and helps the military rally nationalistic sentiments, especially after its controversial role in suppressing political opposition, notably the crackdown on former Prime Minister Imran Khan’s party.

However, rallying public opinion through aggressive posturing is one thing; sustaining a military conflict, even a limited one, is an entirely different challenge—particularly when economic survival hangs by a thread.

How Pakistan Teetered on the Edge of Bankruptcy?

Once hailed as the richest country in South Asia, Pakistan’s economic downfall over the last few decades has been swift and brutal. Post-COVID, Pakistan’s already fragile economy crumbled further:

Inflation skyrocketed, reaching a record 38.5% in May 2023.
Foreign exchange reserves dwindled to just $3.7 billion, enough for only a few weeks of controlled imports.
Growth turned negative, sending shockwaves through all major sectors, from agriculture to industry.
Interest rates soared to a staggering 22%, strangling business activity.
Pakistan remained on the Financial Action Task Force’s (FATF) grey list for years, limiting access to critical international funding.

In a desperate plea that went viral worldwide, Planning Minister Ahsan Iqbal urged Pakistanis to reduce tea consumption—a shocking acknowledgment that the country had to borrow money to import basic goods.

The specter of sovereign default became very real in the summer of 2023. Pakistan’s debt-to-GDP ratio hit 70%, and almost half of government revenues were earmarked just for interest payments. The country’s economic indicators rivaled those of other nations that had defaulted, like Sri Lanka and Ghana.

IMF Bailouts and the Fragile Recovery

Pakistan narrowly avoided complete economic collapse thanks to an emergency $3 billion financial bailout from the International Monetary Fund (IMF). Traditional allies like Saudi Arabia, the UAE, and China also came to the rescue, rolling over billions in loans.

However, these lifelines came with strict conditions:

Implementing tough reforms
Devaluing the currency
Raising taxes and utility prices
Cutting back on subsidies

Each of these measures, while necessary, fueled public anger and political instability, making it harder for any government to stay in power while adhering to IMF demands.

In March 2025, the IMF reached a new agreement with Pakistan for a $1.3 billion climate resilience loan, pending board approval. This comes on top of the $7 billion extended under the ongoing 37-month Extended Fund Facility (EFF).

Yet, even with these measures, Pakistan’s problems are far from over.

The Mountain of Debt: A Persistent Threat

According to Fitch Ratings, Pakistan faces external debt repayments of over $22 billion in fiscal year 2025. This includes nearly $13 billion in bilateral deposits, mainly from friendly countries. Even with fresh IMF disbursements, securing enough external financing remains a daunting challenge.

In February, the World Bank lowered Pakistan’s GDP growth forecast to 2.7% for the year, citing persistent constraints from tight fiscal and monetary policies.

Put simply, Pakistan’s economy is still limping. It needs deep structural reforms that are difficult to implement given the volatile political climate. As Finance Minister Muhammad Aurangzeb recently promised the IMF, Pakistan intends to stay the reform course, but the path is fraught with obstacles.

Suspension of the Indus Water Treaty: Another Blow

India’s suspension of the Indus Water Treaty could have a catastrophic impact on Pakistan’s rural economy. Agriculture forms the backbone of Pakistan’s economy, and the country depends heavily on the Indus River system. Even a partial diversion of water flows by India could devastate crop yields, worsen food insecurity, and stoke rural unrest.

In an economy already battered by inflation, unemployment, and declining industrial output, such a blow could push millions further below the poverty line.

The Cost of War: Economic Suicidal Mission

A full-scale war with India would be an economic catastrophe for Pakistan. Consider the following:

Defense spending surge: Pakistan already spends around 3.9% of its GDP on defense. In the event of a war, this figure would skyrocket, draining already scarce financial resources.
Loss of investor confidence: War risks would make investors flee, further damaging an already precarious economy.
Potential sanctions: International sanctions could follow, especially if Pakistan is perceived as instigating conflict.
Humanitarian disaster: Millions could be displaced, and basic services could collapse, adding to the state’s burden.
Collapse of reform programs: Ongoing IMF programs and foreign investments would grind to a halt.

Even a limited conflict, such as the Kargil War in 1999, had significant economic repercussions. Today, Pakistan’s economy is even more fragile and would likely face an immediate and catastrophic collapse under similar circumstances.

Domestic Turmoil: A Powder Keg

Adding to the external pressures, Pakistan is grappling with intense internal instability:

Insurgencies in Baluchistan and Khyber Pakhtunkhwa continue to drain military resources.
Political unrest following the crackdown on Imran Khan’s party has divided the populace.
Rising religious extremism poses long-term threats to national cohesion.

In such a volatile environment, any military conflict could quickly spiral into uncontrollable domestic chaos, potentially even threatening the territorial integrity of Pakistan itself.

Conclusion: War Is Not an Option for Pakistan

While nationalistic fervor and military rhetoric may appeal to certain audiences, the cold hard facts are clear: Pakistan cannot afford a war with India.

Economically bankrupt, politically unstable, and internationally isolated, Pakistan’s best hope lies in focusing inward—undertaking long-overdue reforms, stabilizing its economy, and working towards peaceful relations with its neighbors.

For India, a firm but calculated response to the Pahalgam attack is essential. However, it must also recognize the risks of pushing a fragile neighbor into a corner, potentially triggering unpredictable and chaotic consequences.

Ultimately, neither country benefits from war. But for Pakistan, war would not just be devastating; it would be suicidal.