The military escalation between India and Pakistan, triggered by the April 22 terrorist attack in Pahalgam, is unfolding at a time when Pakistan’s economy is already on the brink of collapse. As India launched Operation Sindoor to strike back at Pakistan-backed terror camps, the economic aftershocks have further destabilised Pakistan’s fragile financial system. In contrast to India’s economic resilience, Pakistan faces a dangerous convergence of military overreach, foreign debt, and a dwindling ability to meet basic economic obligations.
Military Conflict Amid Economic Fragility
Pakistan’s decision to respond militarily to India’s counter-terror operation through drone attacks and shelling across the Line of Control (LoC) has come at a steep cost. The country’s limited fiscal space is now being consumed by defence-related expenses. According to the Stockholm International Peace Research Institute (SIPRI), Pakistan’s military spending for 2024 was $11 billion, a significant portion of its GDP. This high allocation persists despite a worsening economic environment and increasing dependence on foreign aid.
By contrast, India’s military spending is $86.1 billion, eight times that of Pakistan, but the scale is backed by a robust and growing economy. For Pakistan, matching India militarily is not only unsustainable but economically perilous. The burden of maintaining a credible deterrent against a conventionally superior India continues to divert resources away from essential public services, investment, and growth.
Soaring Debt and IMF Dependence
Pakistan’s external debt has ballooned to $130 billion as of 2024, and it remains heavily reliant on international financial assistance. The country has borrowed 25 times from the International Monetary Fund (IMF) since joining in 1950, and as of March 31, 2025, it owes $6.2 billion to the Fund.
On May 8, India’s Foreign Secretary Vikram Misri stated that New Delhi would urge the IMF board to reconsider approving fresh funding to Pakistan. The board is currently reviewing Pakistan’s financing facilities, and India’s objection comes in the wake of Pakistan’s drone and missile attacks on Indian civilians and infrastructure. India’s position reflects its strategy to not only counter terrorism militarily but also to pressure Islamabad diplomatically and economically.
This development threatens to derail Pakistan’s modest economic recovery under the ongoing $7 billion IMF programme. Experts believe that further conflict would destabilise Pakistan’s economic position even more severely, making it harder to meet IMF conditions and secure additional aid.
Reliance on Handouts and Multilateral Aid
Over the years, Pakistan has increasingly depended on financial handouts from countries like China, Saudi Arabia, and Qatar, along with multilateral institutions such as the World Bank and the IMF. According to the World Bank, it has provided $48 billion in assistance to Pakistan since its membership began. In January 2025, Islamabad agreed to a 10-year plan for a $20 billion loan from the World Bank, hoping to stabilise its macroeconomic fundamentals.
However, international support alone cannot resolve structural weaknesses. Chronic trade deficits, poor tax revenues, and overspending on defence continue to drag the economy down. With India now actively lobbying against new bailouts, Pakistan’s access to external funding may be curtailed, pushing it closer to default.
Civil-Military Imbalance and Economic Mismanagement
A significant issue underlying Pakistan’s economic dysfunction is the powerful role of the military establishment. General Asim Munir, the current Army chief, played a key role in the ouster of former Prime Minister Imran Khan and installed Shehbaz Sharif in power. Beyond politics, Munir and the military control a vast network of commercial enterprises, such as those under the Fauji Foundation. This militarisation of the economy contributes to inefficiency, poor governance, and corruption, stifling genuine private-sector growth. Rather than focusing on structural reform, Pakistan continues to funnel resources into its military and subsidised enterprises. This deepens the economic crisis, even as ordinary Pakistanis suffer from high inflation, unemployment, and low growth.
Domestic Fallout and Public Despair
The economic toll on the population is becoming increasingly severe. With inflation surging and basic commodity prices rising, Pakistanis are struggling to meet everyday expenses. Unemployment is high, and youth are emigrating in record numbers in search of better opportunities abroad. The situation is exacerbated by energy shortages, depreciating currency, and lack of investor confidence. Adding to the strain is Pakistan’s decision to respond militarily to India’s strikes. Sustained conflict could severely disrupt trade routes, increase insurance and borrowing costs, and drive away foreign investors. It also diverts public spending from healthcare, education, and infrastructure to defence, compounding the economic distress.
Diplomatic Isolation and Loss of Leverage
India has not only maintained international support but also effectively neutralised criticism by clearly distinguishing its military operations from civilian targets. It has emphasised that Operation Sindoor focused solely on terror infrastructure in Pakistan and Pakistan-Occupied Jammu & Kashmir (PoJK), deliberately avoiding military or civilian casualties. Pakistan, however, escalated the conflict by launching attacks on Indian civilian and military areas, resulting in 18 Indian deaths and over 50 injuries in 15 days.
This has undermined Islamabad’s international credibility, especially at a time when the world is growing increasingly intolerant of state-sponsored terrorism. Even the United States Secretary of State has reportedly urged Pakistan’s Prime Minister Shehbaz Sharif to take “concrete steps” to end support for terror groups, further isolating Pakistan diplomatically.
