The escalating India-Pakistan conflict in 2025, sparked by the April 22 Pahalgam terror attack, has raised serious concerns about Pakistan’s financial capacity to engage in a war. With India threatening to block a $1.3-billion IMF loan on May 9 and imposing severe economic sanctions, Pakistan’s debt crisis is under the spotlight. This blog explores whether Pakistan can afford a war with India while drowning in debt, offering insights into the economic and geopolitical stakes.
Understanding Pakistan’s Debt Crisis in 2025
Pakistan’s economy is teetering on the edge, burdened by a $128-billion debt and $22 billion in external payments due in FY25. Despite a $7-billion IMF bailout in 2024 and a $1.3-billion climate resilience loan in March 2025, its foreign-exchange reserves are a mere $15 billion—barely enough to cover three months of imports. Inflation has dropped to a 30-year low of 0.7%, but the economy remains fragile, heavily reliant on external financing to avoid default.
The Pahalgam attack, which killed 26 people and was allegedly orchestrated by Pakistan-backed terrorists, has intensified India’s economic retaliation. India has suspended the Indus Waters Treaty (IWT), banned Pakistani ships from its ports, halted bilateral trade, and closed its airspace to Pakistani airlines. These measures threaten Pakistan’s agriculture sector, which contributes 22.7% to GDP and employs 37% of the workforce, potentially causing food shortages for millions.
India’s Economic Warfare: A Strategic Move
India’s strategy focuses on economic pressure rather than immediate military action. By suspending the IWT, India jeopardizes Pakistan’s water supply, which could slash agricultural output and reignite inflation. The trade ban disrupts Pakistan’s access to critical imports like pharmaceuticals, while airspace closures have historically cost Pakistani airlines up to $100 million. The KSE-100 index has already dropped over 2% in response to these measures, signaling investor fears.
India’s potential opposition to the $1.3-billion IMF loan at the May 9 board meeting could be a game-changer. Citing Pakistan’s alleged terrorism links, India aims to block this funding, which Pakistan desperately needs to service its debts. With key lenders like Saudi Arabia and the UAE maintaining close ties with India, Pakistan may struggle to find alternative funding, pushing its economy closer to collapse.
Can Pakistan Afford a War with India?
A war with India, even a limited one, would require significant financial resources—resources Pakistan simply doesn’t have. Military mobilization would drain its limited reserves, diverting funds from essential sectors like healthcare and education. The World Bank estimates that 10 million Pakistanis could face extreme food insecurity in 2025, a crisis that would worsen with disrupted agriculture and trade.
Moody’s Ratings has warned that prolonged tensions with India could block Pakistan’s access to external financing, further depleting its reserves. If the IMF loan is denied, Pakistan’s ability to manage its $13 billion in bilateral deposits will be severely compromised. Inflation, which hit 38% in 2023, could spike again, fueling public unrest and economic instability.
Global Reactions and the Path Forward
The international community is urging de-escalation. The UN Security Council has called for dialogue, while U.S. Vice President JD Vance has pressed Pakistan to address terrorism concerns. Pakistan denies involvement in the Pahalgam attack and seeks a neutral investigation, but its economic vulnerabilities limit its leverage.
India’s economic warfare may prove more effective than military strikes, targeting Pakistan’s weakest link—its debt crisis. Without IMF support and with sanctions tightening, Pakistan’s ability to sustain a conflict is questionable. The May 9 IMF meeting will be a pivotal moment, determining whether Pakistan can secure the funds it needs to stabilize its economy.
Conclusion: A Financial Battle Pakistan Can’t Win
Pakistan’s debt crisis makes a war with India in 2025 a risky proposition. India’s economic sanctions and potential IMF loan opposition could push Pakistan into a deeper financial hole, making a prolonged conflict unsustainable. For Pakistan, the real battle in 2025 may not be on the battlefield but in managing its economy under pressure. As tensions continue, the region’s stability hangs in the balance.
