Simply put, Pakistan already has less money than it needs to repay debt that matures every year. The
cost of a war with India may make the situation worse for the Pakistan economy. It’s bad news for China, too, which recently rolled over $2 billion debt that was due from Pakistan.
Pakistan’s economy has been trying hard to recover from a series of blows starting with the pandemic, followed by the Russia’s attack on Ukraine, which led to debilitating inflation. The economic pain was made worse a spate of political crises plunging the economy to unprecedented depths in recent years. In comparison, India has been the world’s fastest growing major economy in the same period.
Pakistan owed over $131 billion to foreign lenders at the end of December 2024, according to data from the CEIC. It has already borrowed over $3 billion from the International Monetary Fund in each of the last two financial years, FY23 and FY24, to tide over the crisis.
The country’s current reserve of foreign exchange is only enough to cover a little over three months of import bills.
“In a scenario of sustained escalation in localized tensions, we do not expect
major disruptions to India’s economic activity because its has minimal economic relations with Pakistan (less than 0.5% of India’s total exports in 2024). However, higher defense spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation,” the Moody’s report added.
Read more: From missile test to trade blockades: The latest escalation in India Pakistan tensions
(Edited by : Sriram Iyer)
First Published: May 5, 2025 2:50 PM IS
