On Thursday April 24, 2025 the Pakistan Stock Exchange (PSX) faced a major setback. The KSE 100 index which tracks the performance of the top 100 companies in Pakistan dropped by 2.12% losing over 2485 points in early trading. This sharp fall brought the index to 114740.29 causing panic among investors. The crash was triggered by two main factors- India’s strong diplomatic actions following a deadly terror Pahalgam attack in Jammu and Kashmir and the International Monetary Fund (IMF) lowering Pakistan’s economic growth forecast.
What Caused the Market Crash?
1. India’s Diplomatic Measures After the Pahalgam Attack
On April 22, 2025 a horrific terror attack took place in Pahalgam a popular tourist spot in Jammu and Kashmir. The attack carried out by terrorists allegedly linked to Pakistan based groups killed 26 tourists. India responded with a series of tough diplomatic measures against Pakistan which shook investor confidence in the PSX.
India’s actions included:
- Suspension of the Indus Waters Treaty: This 1960 agreement governs the sharing of river waters between India and Pakistan. Its suspension is a major blow to Pakistan as the Indus River is critical for agriculture, drinking water and industrial use in cities like Karachi and Lahore.
- Closure of the Attari-Wagah Border: India shut down this key trade route halting the movement of goods like dry fruits and cement. This closure disrupts small traders and exporters in Pakistan.
- Visa Restrictions: India canceled all visas issued to Pakistani nationals under the SAARC Visa Exemption Scheme and gave them 48 hours to leave the country.
- Diplomatic Downsizing: India expelled Pakistani military advisors and reduced the staff at both countries High Commissions from 55 to 30 by May 1 2025.
These measures heightened tensions between the two nuclear armed neighbors. Investors feared that further escalation could harm Pakistan’s economy leading to a rapid sell off in the stock market. The KSE-100 index fell by as much as 2565 points in the morning though it later recovered slightly to close at 115693.72 down 1.31% by 3 PM IST.
2. IMF’s Downgraded Growth Forecast
The market was already under pressure from bad economic news. On April 23, 2025 the IMF cut Pakistan’s GDP growth forecast for the fiscal year 2025 to 2.6% down from 3%. The Asian Development Bank (ADB) also lowered its forecast to 2.5% compared to Pakistan’s government target of 3.6%. The IMF cited fiscal risks external vulnerabilities and a weakening Pakistani rupee as reasons for the downgrade. This news came just a day before the Pahalgam related tensions adding to investor worries.
Pakistan’s economy has been struggling with high inflation political instability and security concerns, especially in Kashmir. The IMF’s report highlighted these challenges making investors cautious. The KSE-100 had already lost 1204 points on Wednesday, April 23 due to the IMF’s announcement. The combination of economic and geopolitical shocks created a perfect storm for the PSX.
Pahalgam Attack Impacts on Pakistan’s Economy
The crash in the PSX is a warning sign for Pakistan’s fragile economy.
1. Damage to Investor Confidence
The sharp drop in the KSE-100 index reflects a loss of trust among investors. Many sold their shares out of fear that tensions with India could worsen. The suspension of the Indus Waters Treaty is particularly concerning as it could hurt Pakistan’s agriculture sector which employs millions of people. A weaker economy could scare away foreign investors who are already cautious due to Pakistan’s political and security issues.
2. Pressure on the Pakistani Rupee
The Pakistani rupee is already weakening with projections suggesting it could reach 285 against the US dollar by June 2025. The market crash and India’s trade restrictions could put more pressure on the currency. A weaker rupee makes imports more expensive driving up inflation and living costs for ordinary Pakistanis.
3. Trade Disruptions
The closure of the Attari Wagah border disrupts trade between India and Pakistan. Small businesses that rely on cross border trade such as those dealing in dry fruits and cement will face losses. This could lead to job cuts and reduced economic activity in border regions.
4. Website Crash and Market Uncertainty
On April 25, 2025 the PSX website went offline displaying a “We’ll be back soon” message. This technical issue combined with the market’s steep losses, added to investor panic. Social media users on X commented on the crash with some jokingly saying it was a “good way to stop stock sell.” The website outage highlighted the PSX’s vulnerability during times of crisis.
What’s Next for Pakistan’s Stock Market?
The PSX has been volatile in recent years but it had a strong run in 2024 gaining 84% in value. The events of April 2025 show how quickly gains can be erased by geopolitical and economic shocks. Analysts suggest the market could remain unstable in the short term especially if India Pakistan tensions escalate further.
Conclusion
The Pakistan Stock Exchange’s crash on April 24, 2025 was a stark reminder of how sensitive markets are to geopolitical and economic events. India’s diplomatic measures after the Pahalgam attack and the IMF’s gloomy growth forecast created a wave of fear among investors. While the market later recovered some losses the future remains uncertain. Pakistan’s economy faces tough challenges from trade disruptions to a weakening currency.