Every Time Pakistan Went to War With India—Its Economy Bled

1. The First Kashmir War (1947–1948): The Birth of Conflict and the First Economic Disruption

• At its birth, Pakistan had weak industrial infrastructure and heavy dependence on agriculture.
  
  
• The war forced the diversion of early development funds toward defense.
  
  
• India halted the flow of canal water, prompting early agricultural stress before the Indus Waters Treaty was signed in 1960.
  

• Pakistan’s first national budget post-war already allocated more than 25% to military spending.
  
  
• Aid dependency began early: Pakistan turned to the US for financial and military assistance, which created long-term economic imbalance.

2. The 1965 War: A War Pakistan Couldn’t Afford

• Pakistan's GDP growth fell from 9% to 4% the following year.
  
  
• Export markets were disrupted due to the war and increased geopolitical tension.
  
  
• $1.2 billion in foreign aid was frozen temporarily, including support from the US, Pakistan’s largest donor.
  

• The war triggered a sharp increase in defense spending, crossing 6% of GDP, affecting investments in health and education.
  
  
• Pakistan’s industrial growth, which was strong during Ayub Khan's regime, slowed dramatically post-war.

3. The 1971 War: The Breaking Point

• Loss of East Pakistan (Bangladesh) meant losing over 50% of Pakistan’s population and a large share of revenue and exports.
  
  
• Pakistan’s foreign reserves collapsed by nearly 50%, and the rupee was devalued.
  
  
• Inflation rose sharply, and GDP contracted in the following years.
  

• Pakistan again turned to the IMF and World Bank, securing emergency loans.
  
  
• The war marked a shift from limited foreign dependence to a chronic cycle of international borrowing.

4. The Kargil Conflict (1999): An Isolated Pakistan and Global Economic Fallout

• Pakistan’s economy was already unstable after the 1998 nuclear tests, which triggered US-led sanctions.
  
  
• The Kargil War worsened Pakistan’s isolation, making investment and trade even more difficult.
  
  
• The Pakistani rupee fell sharply, and foreign direct investment dried up.
  

• The war damaged Pakistan’s image, reducing foreign trade and investment further.
  
  
• GDP growth dipped to 3.9% post-Kargil, and debt-to-GDP ratio hit nearly 90% by early 2000s.

5. The Pulwama-Balakot Standoff (2019): A New Era of Economic Strain

• Pakistan’s economy was already in crisis. The standoff led to a flight of foreign capital.
  
  
• India revoked Pakistan’s Most Favoured Nation (MFN) status, imposing 200% duties on imports.
  
  
• Exports to India collapsed, hurting Pakistan’s textile and cement industries.
  

• In July 2019, Pakistan had to secure a $6 billion IMF bailout, its 13th since the 1980s.
  
  
• Defense spending remained a top priority despite inflation and forex reserves dropping to just 2 months of import cover.

6. Operation Sindoor (2025): Economic Fragility in a New Conflict

• The Karachi Stock Exchange dropped 1,000 points in 48 hours post-strike.
  
  
• Foreign investors are already pulling back; Moody’s downgraded Pakistan’s outlook to “negative”.
  
  
• Pakistan’s external debt stands at $130 billion, and defense allocations continue to rise even as development spending is frozen.
  
  

• The West has largely backed India’s right to retaliate against terrorism, leaving Pakistan diplomatically cornered.
  
  
• Ongoing FATF scrutiny and reduced remittance inflows are adding pressure to an already volatile economy.

Key Patterns: What the Data Tells Us

A War Economy with No Exit Plan