Pakistan is facing tough times in 2025. Its economy is under heavy pressure due to a mix of financial troubles, geopolitical tensions and new threats like cyberattacks. The country’s stock market has crashed inflation is hurting people and a recent terror attack has made things worse. Reports suggest India is trying to block Pakistan’s access to crucial International Monetary Fund (IMF) funds adding to the strain. On top of that Pakistan’s Ministry of Finance has warned about possible banking disruptions telling citizens to keep cash at home.
The Economic Struggle
Pakistan’s economy has been shaky for years. The country relies heavily on loans from the IMF and other global lenders to keep things running. In 2023 Pakistan secured a $7 billion bailout from the IMF followed by a $1.3 billion loan in March 2024 to help with climate issues. These funds were meant to stabilize the economy which is worth about $350 billion. But the situation is still fragile. Inflation though lower than the 38.5% peak in May 2023 is expected to stay between 5.5% and 7.5% in 2025. This means prices for essentials like rice, flour and chicken are still high with rice costing up to Rs 340 per kg and chicken at Rs 800 per kg.
Pakistan’s foreign exchange reserves are also low sitting at just $16.04 billion compared to India’s $686.2 billion. The Pakistani rupee is weak with one US dollar equaling 280.95 PKR as of April 2025. The country owes over $22 billion in external debt repayments in 2025 which is a huge burden. Add to that a fiscal deficit of 7.4% of GDP and it’s clear Pakistan is struggling to balance its books.
The Pahalgam Terror Attack and Stock Market Crash
On April 22, 2025 a deadly terror attack in Pahalgam, Jammu and Kashmir killed 26 tourists. India blamed Pakistan based groups like The Resistance Front (TRF) linked to Lashkar-e-Taiba for the attack. In response India took strong diplomatic steps including suspending the Indus Waters Treaty closing the Wagah-Attari border and banning trade with Pakistan. These moves hit Pakistan’s economy hard.
The Pakistan Stock Exchange (PSX) felt the impact immediately. The KSE-100 index which tracks top companies crashed by over 2500 points on April 24, 2025 and kept falling. By April 30 it had dropped by 3500 points and over two weeks it lost nearly 6% of its value. Investors panicked as India’s actions combined with a gloomy IMF growth forecast of 2.6% for 2025 (down from 3%) shook confidence. The closure of the Wagah-Attari border disrupted trade worsening Pakistan’s trade deficit. The suspension of the Indus Waters Treaty which controls water sharing threatens agriculture, which makes up 24% of Pakistan’s GDP and employs 37.4% of its workforce.
India’s Push Against IMF Bailout
India’s response to the Pahalgam attack went beyond borders and trade. Reports suggest India is lobbying global financial institutions like the IMF to delay or add strict conditions to Pakistan’s $1.3 billion climate loan and a $1 billion bailout tranche. Posts on X from late April and early May 2025 highlight India’s efforts to raise concerns about Pakistan’s alleged misuse of funds and support for terrorism. At the IMF board meeting on May 9, 2025 India plans to argue that these funds could be diverted to military or militant groups. If successful this could choke Pakistan’s access to critical financing making it harder to pay debts or stabilize the economy.
Pakistan denies involvement in the attack and insists the funds are vital for its struggling economy. However India’s push combined with calls to put Pakistan back on the Financial Action Task Force (FATF) grey list for terrorism financing could isolate Pakistan further. This would scare off foreign investors and limit access to international credit.
Cyber Threat Alert and Banking Fears
Adding to the chaos Pakistan’s Ministry of Finance issued a cyber threat alert in early May 2025. The alert warned of possible cyberattacks that could disrupt the banking system. Citizens were advised to keep three months worth of cash at home sparking fears of bank failures or restricted access to money. This warning comes at a time when trust in Pakistan’s financial system is already low. A cyberattack could worsen the situation making it harder for people to access funds or for businesses to operate.
Geopolitical and Internal Challenges
Pakistan’s troubles are not just economic. Tensions with India have escalated with both countries closing airspace and increasing military activity. Pakistan’s decision to block Indian flights has backfired costing the country overflight fees and forcing global airlines like Lufthansa and Emirates to reroute. This is a repeat of 2019 when a similar move cost Pakistan nearly $100 million.
Internally Pakistan faces political unrest and security issues in regions like Baluchistan and along the Afghanistan border. These challenges make it harder to attract investment or focus on economic reforms. The government’s decision to scrap crop price supports and raise taxes as demanded by the IMF has also upset farmers and retailers adding to public frustration.
What’s Next for Pakistan?
Pakistan is at a crossroads. The combination of a crashing stock market India’s diplomatic pressure and the cyber threat alert has created a sense of crisis. The IMF meeting on May 9, 2025 will be crucial. If the bailout funds are delayed or blocked Pakistan could face a deeper financial crunch possibly even defaulting on its debts. The suspension of the Indus Waters Treaty threatens longterm agricultural output which could lead to food shortages and higher prices.
To survive Pakistan needs to stabilize its economy rebuild investor confidence and address security concerns. This means working with global lenders improving governance and tackling corruption. However with tensions high and internal challenges growing the road ahead looks tough.
In summary Pakistan’s economic strain in 2025 is a mix of old problems and new crises. The Pahalgam attack India’s response and the cyber threat alert have pushed the country to the edge. While the government hopes for IMF support the future remains uncertain. For now Pakistanis are bracing for more hardship as they navigate this perfect storm.