The Pahalgam terror attack has triggered a wave of retaliatory diplomatic and economic actions from India that could severely destabilize Pakistan’s already fragile economy, potentially undoing the modest recovery it had achieved after securing IMF assistance. Despite inflation easing to 0.7% and a $2 billion IMF bailout in March, Pakistan now faces renewed economic stress due to India's decisive measures: halting bilateral trade, suspending the Indus Waters Treaty, cancelling Saarc visa exemptions, and expelling Pakistani officials.
The economic impact is broad and multifaceted. The trade suspension alone threatens shortages of essential goods—particularly pharmaceutical products and organic chemicals that form the bulk of Pakistan’s $304.93 million imports from India. Prices of basic items like rice and chicken are already soaring, with rice now at Rs 340/kg and chicken at Rs 800/kg. Inflation, once under control, is expected to rise again—perhaps even breaching the central bank’s projected 5.5–7.5% range for FY2025.
The looming threat to agriculture from potential disruption of Indus river water—critical for 24% of Pakistan’s GDP and 37.4% of its workforce—adds a structural crisis to the short-term trade shock. If India curtails water flow under the Indus Waters Treaty, it could cripple rural livelihoods and exacerbate food insecurity for over 10 million people, as forecasted by the World Bank.
Investor confidence has also been shaken. The Karachi Stock Exchange’s KSE-100 index plunged over 2% in minutes on April 24, reflecting fears of long-term fallout. The World Bank and IMF have downgraded Pakistan’s growth forecast to 2.7% and 2.6%, respectively, citing high fiscal deficits (7.4% of GDP), weakening currency (USD/PKR = 280.95), and unsustainable debt-to-GDP levels.
Additionally, Pakistan’s retaliatory move to close its airspace may prove self-destructive. Historical precedent from 2019 suggests daily aviation losses could exceed $750,000, potentially culminating in another $100 million setback if the closure continues for weeks. Losses in overflight fees from Indian carriers—part of the world's third-largest aviation market—compound Pakistan's financial woes.
Diplomatically, India’s firm response is being likened to Israel’s “wrath of God” strategy, signaling a zero-tolerance stance on cross-border terrorism. The suspension of cooperation frameworks like the Indus Waters Treaty and Saarc Visa scheme reflects the severity of the geopolitical shift.
In summary, the cost of terror is turning out to be extremely high for Pakistan—not just diplomatically, but also economically, socially, and politically. The country now risks slipping deeper into crisis, facing shortages, inflation, shrinking growth, and international isolation at a time when its recovery was still nascent.
