aving ignored Pakistan’s offer for a transparent joint investigation into the tragic incident in Pahalgam and without providing any evidence linking the country to it, India has once again imposed a war on Pakistan through its unilateral aggression and missile attacks on civilians.

As tensions between Pakistan and India intensify, the ripples of conflict are not confined to the Line of Control or the international border between the two nuclear-armed neighbours—they reach deep into national economies, household budgets and development priorities.

India, with its $4 trillion economy and $680 billion foreign reserves, commands significant resources. In contrast, Pakistan’s $350 billion economy, with $16 billion reserves, have continuously shown resilience. In terms of defence budget, India allocated around $75 billion for defence in 2024-25. Pakistan, on the other hand, spent $7.6 billion on its defence needs during this period. While these numbers reflect differing scales of economic and defence capacities, they do not tell the whole story.

While economic and defence budgets may appear asymmetrical, both Pakistan and India possess comparable nuclear capability—each with a similar number of nuclear warheads. This nuclear parity has been the ultimate strategic deterrent, effectively neutralising all other imbalances. In any scenario of full-scale escalation, the catastrophic consequences will far outweigh any perceived advantage of size or spending to India. This equilibrium of mutually assured destruction is the framework that fully explains the economic cost of war. One is optimistic that things will not escalate to that level. However, there is a considerable economic cost associated with the current conflict, too.

Both countries have imposed a total ban on imports from each other, including goods in transit through third countries. However, it is only a symbolic gesture. Their existing trade had already reached its lowest level in decades. Pakistan exported just $0.42 million worth of goods to India and imported goods worth $447.65 million from it between April 2024 and January 2025. Trade through third countries, such as the UAE and Singapore, is estimated to be worth $10 billion annually. This trade risks greater scrutiny and risk following the latest ban.

Pakistan’s greatest concern is India’s illegal suspension of the Indus Waters Treaty—a critical agreement governing the flow of six major rivers of the Indus basin. Pakistan’s agriculture, which contributes 19 percent to the country’s GDP and supports millions of livelihoods, depends heavily on predictable water flows in the three western rivers of the Indus Basin. India’s actions, including lowering sluice gates on the Chenab River and refusal to share hydrometric data, will make Pakistan’s flood management and irrigation planning difficult.

While India currently lacks the infrastructure to fully halt water flows, these disruptions can affect Pakistan’s food security. For India, this move may achieve short-term leverage but risks long-term instability in the region.

Pakistan Stock Exchange responded to Indian missile attacks on May 7 with a steep fall of more than 6 percent. However, half of it was recovered by the end of the day. The concern that India may attempt to lobby the IMF executive board members for delays in IMF disbursements is hypothetically present, but one is optimistic that Pakistan will secure the tranche due to its consistent performance in the current loan programme.

Indian stock markets have demonstrated short-term resilience, with the UK-India free trade agreement contributing positively to the sentiment on May 7. Yet, investors are cautious: multinational corporations, including Apple (slated to manufacture iPhones in India by 2026), are reassessing their investment strategies amid concerns over security, energy stability and the risk of escalation.

By downing India’s sophisticated fighter jets, Pakistan has once again demonstrated its ability to defend itself. However, heightened defence spending that Pakistan should make risks widening its fiscal deficit, with inevitable consequences for social sector investments. India’s economy, too, is not without pain points. Moody’s has revised India’s GDP growth forecast for 2025 downward to 6.3 percent, citing geopolitical tensions as a drag on investor confidence. A prolonged conflict could increase India’s fiscal deficit by up to 50 percent within weeks, potentially leading to tax hikes that would erode its global competitiveness.

Now that the conflict (and water aggression) has been imposed upon Pakistan, the instinct to respond firmly is natural. Pakistan Air Force has responded in a befitting manner. However, we should also keep in mind that long-term success is forged by blending national strength with strategic patience. The current tension is not just a military confrontation but also a test of Pakistan’s economic, diplomatic and institutional resilience.

First and foremost, Pakistan must intensify its diplomatic engagement. Our legal and diplomatic corps should work vigorously in international forums to expose India’s aggression and our right of self-defence under UN’s Article 51. Sustained lobbying with the US, China, Turkey and the Gulf nations can amplify Pakistan’s stance and ensure the global community remains attentive to regional stability.

Simultaneously, internal reforms must reinforce our defensive posture. Strengthening water security is crucial: Pakistan should accelerate investments in modern irrigation, water conservation, satellite hydrometry and diversified sources to cope with unpredictable upstream flows. These steps serve as both a defence against external coercion and improve long-term food and economic security.

Economic resilience requires economic diplomacy and foresight. Pakistan needs to remain engaged with key multilateral and bilateral lenders to prevent India from negatively influencing Pakistan’s foreign exchange inflow. To safeguard critical sectors like pharmaceuticals, which are vulnerable to supply chain disruptions, Pakistan should explore China, one of the world’s leading suppliers of pharmaceutical active ingredients. Equally important is maintaining cohesion at home. Transparent, facts-based communication from leadership is essential to keep the public morale strong and prevent misinformation from sowing panic.

Pakistan has a history of remarkable resilience, whether in the face of militancy or terrorism, FATF sanctions, financial crises, floods, geopolitical pressures or unilateral aggression. In the immortal words of Quaid-i-Azam: “No power on earth can undo Pakistan.” As the world watches, our task now is to ensure that no economic pressure can undermine it either.

The writer heads the Sustainable Development Policy Institute. His LinkedIn handle is abidsuleri