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The writer is the former head of the emerging market investments of Citigroup and author of ‘The Gathering Storm’
India missile attacks against Pakistan this week have significantly intensified tensions with their neighbor with nuclear weapons, marking the greatest incursion into Pakistan’s undisputed territory since the Indo-Pakistani War of 1971. The Pakistani Prime Minister, Shehbaz Sharif, described the attack as “an act of war”, as Islamabad to the altarvice.
The conflict was caused by a terrorist attack by April in Cashmiro administered by India, which killed 26 civilians and attracted international concern. Donald Trump has described the situation as “a shame” and expressed the hope of a quick resolution, commenting that “they have been fighting for a long time, for many, many decades.”
For Pakistan, the economic consequences of another prolonged conflict would be significantly more severe than for India, which makes any continuous escalation especially dangerous. The Moody investor service warned about the dangers on May 5. “Tensions with India would probably weigh the growth of Pakistan and hinder tax consolidation, delaying macroeconomic stability,” said the agency. Pakistan’s economy, which shows an attempt recovery under an IMF program of $ 7 billion, could collapse.
Historically, such conflicts have destabilized Pakistan. The war in Afghanistan had a devastating impact, contributing to the emergence of sectarian violence, the proliferation of weapons and drugs, and the emergence of extremist groups that challenge the authority of the State.
Today, its economy is still very vulnerable. As of December 2024, Pakistan’s external debt had exceeded $ 131 billion, while its foreign exchange reserves of around $ 10 billion were covered only three months of imports. Any additional military escalation could endanger access to foreign capital markets and bilateral financing, aggravate reimbursement challenges and effort reserves. The IMF program itself could be thrown by the course by a higher geopolitical risk.
In 2021, former Chief General of the Pakistan Army, Qamar Javed Bajwa warned journalists than the country He lacked Sufficient diesel to feed their tanks and even funds to operate them, a vulnerability that persists.
India, in contrast, is in a remarkably stronger position. The bilateral trade between the two is still insignificant, which represents less than 0.5 percent of the total exports of India in 2024. Even in a prolonged confrontation, India’s economic activity would face a minimum interruption.
There may be indirect costs for New Delhi: a strong increase in defense spending could delay its fiscal consolidation, diverting resources from development priorities. The increase in military expenses could also prevent infrastructure expansion and reduce assignments for social programs. India also faces security pressures on multiple fronts, particularly along the borders played with China. A two -front safety position imposes costs that, although manageable, guarantee a strategic caution when it comes to what happens next.
However, the situation of India paleses compared to the existential economic risks faced by Pakistan. For Islamabad, military commitment could offer a point of temporary political manifestation amid domestic disturbances, but economic damage would be lasting. Already supported by Chinese support, Beijing recently shot for $ 2 billion in debt, Pakistan runs the deepest risk of China, which complicates their relations with Western allies, particularly the United States.
Pakistan’s true economy, particularly agriculture, would also suffer. The suspension of India of the 1960 Indo Water Treaty sends a destabilizing signal. Agriculture remains the backbone of Pakistan’s economy, which uses almost 40 percent of its workforce. Combined with continuous political instability and the persistent effects of the floods of 2022, the country is poorly prepared for another important shock. A single crisis could trigger economic collapse and mass suffering. For Islamabad, avoiding significant climb could be a matter of survival.
Swift International Action is now essential to soothe the growing tensions between India and Pakistan: not only will it free not only unleashed broader geopolitical instability, but also imposes on the livelihoods of millions in one of the poorest regions of the world (the two countries together cover a proportion of the global population that subsist in less than $ 3.65 per day).
Even if a large -scale war seems unlikely, the potential of limited hostilities, frequent in the tense history of this rivalry, remains high. And short -term climbs can still impose huge economic and human costs, particularly in a country as vulnerable as Pakistan.