The suspension of Indus Waters Treaty, the Pakistan Stock Exchange (PSX) along with the underlying domestic economic compulsions have broken Pakistan, which may find itself in a much more precarious situation should it initiate a military conflict with India amidst the Pahalgam terror strike on April 22. The PSX crashed 2,000 points on April 24 after the Indian government took tough diplomatic steps, including putting the Indus Waters Treaty in abeyance, halting the SAARC Visa Exemption Scheme for Pakistani nationals, expelling military attaches and slashing diplomatic staff at both High Commissions. Additionally, the Attari check post has been shut immediately, with a May 1 deadline for any legal cross-border returns. India’s response follows the terror attack at Baisaran meadow, a popular hill town of Pahalgam in Jammu and Kashmir, where 26 people — mostly tourists — were killed. Baisaran, often referred to as ‘Mini Switzerland’, is a frequent stop for domestic and international visitors. Let us understand how weak is Pakistan’s economy. Tensions With India Could Strain Pakistan Economy Further The benchmark Karachi-100 index (KSE-100) dropped over 2% or 2,500 points to 1,14,740.29 within the first five minutes of trading after investors reacted to the geopolitics tensions. By 3 pm on April 24, the KSE-100 index had recovered some losses but was still trading lower by 1,532.42 points or 1.31% at 115,693.72, reflecting the market’s nervousness over any further escalation. This is the second straight session of losses for the Karachi stock market. On Wednesday, the index had slipped 1,204 points after the IMF trimmed Pakistan’s GDP growth forecast for FY25 to 2.6%, citing fiscal risks and continued external vulnerabilities. The Asian Development Bank (ADB), too, has lowered Pakistan’s 2025 GDP growth forecast to 2.5%, from 3% projected in December 2024. “The market opened lower amid fears of escalating tensions between Pakistan and India,” said Yousuf M. Farooq, Director of Research at Chase Securities, in a quote carried by Dawn. “However, positive corporate earnings have supported a partial recovery.” Indus Water Treaty Suspension Could Hit Pakistan Agriculture The suspension of Indus Waters Treaty will have serious repercussions for Pakistan’s agricultural economy, disrupting crucial water data sharing and reducing flows during key crop seasons, experts have warned. Signed in 1960, the treaty allocates the eastern rivers — Sutlej, Beas and Ravi — to India and the western rivers — Indus, Jhelum and Chenab — to Pakistan. Notably, the treaty includes no clause allowing unilateral suspension. Experts have pointed to the legal constraints of the agreement, India’s geographic advantage as the upstream country and the potentially-severe economic fallout for Pakistan. Pakistan’s strained economy could face further stress as agriculture contributes 22.7% to its GDP and employs 37.4% of the workforce, according to its 2022-23 Economic Survey. According to the World Bank’s “Pakistan: Getting More from Water” (2019) report, the Indus system irrigates 90% of the country’s food crops. Wheat, rice and cotton — major exports that earned $4.8 billion in 2022 (State Bank of Pakistan) — are particularly vulnerable to water disruptions during crucial growth periods. P K Saxena, former Indian Commissioner for Indus waters, earlier told think-tank NatStrat that India should respond strategically by accelerating development on the western rivers, engaging in proactive treaty renegotiations and challenging Pakistan’s selective interpretations. When Pakistan Went Bankrupt Pakistan was reduced to the poorest due to bad governance, military dictatorships and adoption of promoting cross-border terror as state policy. Just as it witnessed political turmoil over former Prime Minister Imran Khan’s imprisonment and insurgency in Balochistan, bankruptcy stared it in the face. Planning Minister Ahsan Iqbal had to urge Pakistanis to cut down on tea as the country imported tea and for that it had to borrow money. The statement highlighted the precarious condition of Pakistan’s foreign reserves. Pakistan’s $350 billion economy struggled as inflation rose to record high of 38.50% in May 2023, with growth turning negative, reserves shrinking to barely a couple of weeks of controlled imports, and interest rates jumping to 22%. It had reserves of just $3.7 billion remaining. For nearly five years, it remained on the grey list of the Financial Action Task Force (FATF) for terror funding which made access to loans difficult. With Pakistan’s debt-to-GDP ratio in a danger zone of 70%, and between 40% and 50% of government revenues earmarked for interest payments in 2023, only default-stricken Sri Lanka, Ghana and Nigeria were worse off. Last month, the IMF reached a deal with Pakistan for a new $1.3 billion arrangement and agreed on the first review of the ongoing 37-month bailout programme. Pending board approval, Pakistan can unlock the $1.3 billion under a new climate resilience loan programme spanning 28 months, the IMF said. It will also free $1 billion under its $7 billion bailout programme, which would bring those disbursements to $2 billion. “Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment,” the IMF said in a statement. But Pakistan’s external financing needs will remain significant in the coming year, despite progress in rebuilding its foreign exchange reserves, Fitch Ratings said in February. It needs to repay over $22 billion in external debt in the financial year 2025, including nearly $13 billion in bilateral deposits, Fitch said. “Securing sufficient external financing remains a challenge, considering large maturities and lenders’ existing exposures,” said the credit ratings agency. What’s Pakistan’s Plan Now? Pakistan’s Prime Minister Shehbaz Sharif on Thursday convened a meeting of the National Security Committee after India responded with five-point action against the neighbouring country over the Pahalgam terror attack. The National Security Committee will deliberate upon internal and external situations and “will review response to India’s hastily taken, impulsive and impractical water measures”, local broadcaster Radio Pakistan reported on Wednesday evening. Local media also said three services chiefs and important key ministers were supposed to be part of the meeting. Earlier, defence minister Rajnath Singh had assured the nation of a “loud and clear” response to the Pahalgam terror attack, which indicates a military response could be in the works. Pakistan has issued a notification to carry out surface-to-surface missile test from its Karachi coast along its coastline within its exclusive economic zone on April 24-25, news agency ANI reported citing sources.