Pakistan’s fragile economy faces a pivotal IMF review today, with India opposing further bailouts due to alleged terror financing. The cash-strapped nation, burdened by debt, risks collapse if military tensions with India escalate.
By New Delhi Post, New Delhi: Pakistan’s economy, grappling with over $130 billion in external debt and just $15 billion in forex reserves, is under intense scrutiny at today’s IMF board meeting in Washington. India has urged the IMF to reconsider bailing out Pakistan, citing the diversion of funds toward terror activities, particularly following the Pahalgam attack on April 22. The ongoing Extended Fund Facility, a $7-billion loan from 2024, hangs in the balance.
Military Tensions Threaten Stability
Rising tensions with India pose a severe risk to Pakistan’s economic recovery. Experts warn that a prolonged military conflict could devastate its already overstretched finances, with reserves barely covering three months of imports. The IMF and World Bank project modest growth of 3.1% for FY25-26, but geopolitical shocks and policy slippages could derail this progress, potentially triggering a deeper crisis for Islamabad.
Structural Woes Compound the Crisis
Pakistan’s economy is plagued by structural issues, including high fiscal deficits, a small taxpayer base, and an import-dependent energy sector. The country’s reliance on foreign loans, particularly from China, has deepened its debt burden. Natural disasters like the 2022 floods have worsened conditions, pushing poverty rates to 42.3% in FY24, with 2.6 million more Pakistanis falling below the poverty line last year.
Agriculture and Energy Sectors at Risk
A potential conflict with India could cripple Pakistan’s agriculture sector, which employs 40% of its workforce. Experts also highlight the country’s energy crisis, driven by costly imports and inefficiencies, as a major economic drag. The power sector’s circular debt has spiked, stifling growth. Pakistan’s economic survival hinges on securing multilateral support, a challenge amid India’s opposition.
Pakistan’s economic woes deepen as military tensions with India loom large. Without urgent reforms and global support, the nation risks a devastating collapse, threatening millions of livelihoods.