India vs Pakistan – Can It Fight India on Loan-Funded Resources?
Following the Pahalgam terror attack, tensions between India and Pakistan have escalated, raising concerns over its ability to finance prolonged military engagements. Pakistan’s economy, heavily reliant on external loans, is now facing critical challenges as defense expenditures mount. (ALSO READ: World Responds to Operation Sindoor: Calls for Restraint Amid Rising Tensions)
Economic Struggles and Stabilization Efforts
Despite a GDP of approximately $350 billion, Pakistan’s economy has only recently shown signs of stabilization, largely due to a $7 billion IMF bailout package secured in 2024. Inflation has significantly eased, dropping to low double digits, and the central bank has slashed its policy rate to 11% from 22% in June 2024. However, these improvements remain fragile. Prolonged military conflict could undo these gains, putting further strain on an already vulnerable economy.
IMF Loan Under Scrutiny
On May 9, 2025, the IMF is set to review a proposed $1.3 billion climate resilience loan to Pak. India has raised concerns about the potential misuse of these funds, citing the country’s support for cross-border terrorism. The Indian government is pressing the IMF to reconsider the loan, highlighting national security risks linked to its actions.
Geopolitical Implications for Pakistan’s Economy
The ongoing tensions have already resulted in military confrontations, including airstrikes and artillery exchanges. Pakistan has conducted missile tests, while India has responded with heightened security drills. Moody’s has warned that prolonged conflict could severely hamper the country’s ability to secure external financing, further depleting its foreign-exchange reserves, which remain insufficient to meet future debt obligations.