ANALYSIS: Can Pakistan’s cash-strapped economy afford a conflict?published at 12:35 British Summer Time
Nikhil Inamdar
Reporting from London
The border conflict with India couldn’t have come at a worse time for Pakistan. Its economy has just begun to recover from an abyss.
Gross domestic product (GDP) barely grew in 2023 amid rising import bills, dwindling foreign exchange reserves and spiralling inflation. In 2024, Pakistan clocked 2.5% growth, and is slated to grow at 3% in 2025, according to the Asian Development Bank (ADB)
But the fog of conflict has complicated things, and presents a renewed setback for Islamabad.
ADB earlier expected growth this year to be driven by a “rebound in private sector investment linked to progress on reform measures, perceptions of greater economic stability, and a stable foreign exchange market”.
That calculus has now gone awry. The Pakistani rupee has tumbled, stocks are down sharply, and the last thing investors want is the looming threat of greater conflict when they take decisions on putting money into new projects.
Sustained escalation would also likely weigh on the government’s ongoing attempts to get its finances in order, “setting back Pakistan’s progress in achieving macroeconomic stability”, Moody's Ratings agency warned earlier.
The International Monetary Fund (IMF) will meet later today to decide on the next tranche of its $7bn (£5.2bn) bailout package to the country.