Pakistan Economy On Brink Of Collapse? Analysts Warn Of Severe Blow Amid Escalating Tensions
Analysts say further increase in tensions with India could impair Pakistan's access to external financing and strain forex reserves, apart from impacting progress on IMF programme.
The Pakistani economy is set to face severe hardships as tensions escalate with India, as the cash-strapped country has forex reserves of just $10 billion to cover barely three months of imports and an external debt burden of over $131 billion. According to analysts, any further increase in tensions could impair the country’s access to external financing and strain forex reserves, apart from impacting Pakistan’s progress on the IMF programme.
“Any further military escalation could jeopardise access to foreign capital markets and bilateral financing, compounding repayment challenges and straining reserves. The IMF programme itself could be thrown off course by heightened geopolitical risk," Yousuf Nazar, former emerging markets investments head of Citigroup and chief macro (EM) strategist, has said in an article in The Financial Times on May 7.
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In what it called ‘Operation Sindoor’, India on Wednesday hit multiple terror hideouts in Pakistan and Pakistan-Occupied Kashmir (POK) to avenge the April 22 Pahalgam killings. On Thursday, the Indian forces also shot down a barrage of Pakistani drones and missiles.
In a recent report, global ratings agency Moody’s said the ongoing tensions are also likely to impact Pakistan’s progress on the IMF programme, apart from increasing external debt pressure.
Nazar in his article wrote, “Pakistan’s economy, showing tentative recovery under a $7 billion IMF programme, could collapse."
The International Monetary Fund’s (IMF) executive board is scheduled to meet on May 9, to review the ongoing $7 billion bailout package for Pakistan.
Moody’s in the report further said, “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back pakistan’s progress in achieving macroeconomic stability."
India’s Suspension Of Indus Waters Treaty To Hit Pak Agri Growth
According to reports, India’s decision to put in abeyance the 1960 Indus Waters Treaty would hit Pakistan’s agriculture growth, thus further weakening the country’s economy.
Last year, the country’s agriculture posted a robust growth of 6.25 per cent.
Panic In Pakistan Stock Exchange
Pakistan’s benchmark KSE-100 index has plunged sharply over the past two weeks, falling from a high of 118,312 points on April 22 to 103,060.30 as of May 8. The steep decline, over 15,000 points, triggered by the heightened anxiety among investors amid rising geopolitical tensions in the region.
On Thursday, May 8, Pakistan temporarily suspended trading on its stock market after the benchmark KSE-30 index plummeted 7.2%, marking a second straight session of steep losses.
‘India To Remain Stable’
Moody’s in the report said India’s economy is expected to remain relatively stable, amid low trade exposure to Pakistan (less than 0.5 per cent of total exports in 2024) and supported by public investment and private consumption.
“Comparatively, the macroeconomic conditions in India would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption," Moody’s stated.
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