The first law of holes states that if you find yourself in one, stop digging. But Pakistan, whose economy is already at the grief's doorstep, seemed bent on trading growth for guns before good sense finally prevailed and a ceasefire was announced in a grand Saturday surprise.
Given its rising external debt, fears might have been running high that Pakistan would have been impaled on a lien should things have gone south. Moreover, with depleting foreign reserves, chronic trade deficit, low tax earnings, worsening balance of payment crisis, high unemployment and inflation, everything there seems like it's going to zero.
In such a situation, no country in its right mind would have tempted fate and yanked on the lion's tail.
Yet, Pakistan initially did just that, directing its drones, jets and all its firepower towards India, which put up a stellar defense, before peace finally prevailed.
Look any which way, it was never a clash of equals.
India is the world's fifth largest and fastest-growing economy, its military capabilities are far superior and advanced and its macroeconomic fundamentals are strong enough to swallow a thousand needles.
In contrast, Pakistan's economy is on its knees, and with global commodity price shocks, tightening global financial conditions, or rising protectionism could trigger a compound economic fracture.
Above all, India can effortlessly lend a hand to bankrupt nations, while Pakistan is surviving from one bailout to another. A full-fledged war was then something it couldn't afford.
Remember, the IMF had just granted $2.3 billion in fresh loans to Islamabad on Friday amid stern opposition from India. In hindsight, you all might well wonder if it was part of the de-escalation negotiations happening in the background?
But social media on Friday, netizens trolled the multilateral agency to rename itself as International Mujahideen Fund for supporting terrorist nations.
So far, Pakistan has availed loans 25 times from the IMF since becoming a member in 1950. In 2023, its economy was on the brink of bankruptcy, but managed to survive thanks to the IMF bailout. Last September, IMF extended another $7 billion loan that helped its economy from collapsing. Besides, Pakistan also borrowed from the World Bank in excess of $48 billion and also counts countries like China and some Middle East nations as its lenders.
Among all, China appears to be its biggest creditor. According to estimates, over one-fifth of Pakistan's external debt, aggregating $130 billion, was from China. According to Fitch, Pakistan's forex reserves pegged at $15 billion are sufficient to cover just three months of imports. Moreover, about $22 billion of public external debt will be maturing soon, including $13 billion in bilateral deposits.
In fact, Moody's Ratings recently cautioned that sustained escalation in tensions with India would likely weigh on Pakistan's growth and hamper the government's ongoing fiscal consolidation, setting back Islamabad's progress in achieving macroeconomic stability. It could impair access to external financing and pressure forex reserves, which remain well below what is required to meet its external debt payment needs for the next few years, experts noted.
As for growth, Pakistan's prospects appear dim with the IMF pegging FY26 estimates at 3.1% as against 2.7% in FY25, while the World Bank projected FY26 growth at 3.2%. The latter had also flagged that Pakistan's growth will likely remain constrained by tight macroeconomic policies focused on rebuilding fiscal and external buffers and mitigating risks to economic imbalances.
Clearly, Pakistan's finances weren't strong enough to engage in an extended military conflict.
Even if Pakistan managed to proceed with borrowed bucks, the simple question was how long it could have continued? As it is, its credit metrics have deteriorated and if tensions had escalated, it would have led to harsh downgrades.
Various multilateral institutions have been repeatedly flagging Pakistan's structural problems, including high fiscal and current account deficits, political instability, low agriculture and industrial productivity, protectionist trade policies, a financially unsustainable and import-dependent energy sector, weak exports, and a small taxpayer base, among others.
Agriculture remains the backbone of Pakistan's economy, employing nearly 40% of its labour force and India's suspension of the 1960 Indus Waters Treaty would have been a huge cause for worry at a time of rising poverty. As the World Bank noted, the estimated lower-middle income poverty rate stood at 42.3% for FY24 with an additional 2.6 million falling below the poverty line from the year before.
With all these factors also weighing in the final equation, enough is enough the Pakistan establishment must have said while agreeing to the ceasefire. There indeed was wisdom in following the money trail in this instance.
