Pakistan: Devastated by Operation Sindoor

India’s precision strikes, codenamed “Operation Sindoor” – in retaliation to Pahalgam terror attack –threw up many firsts.  In this battle theatre, drones led the fight from both sides, making costly war planes almost redundant.

Unlike earlier, India also called the nuclear bluff of Pakistan. It retaliated to counter attacks with artillery, drone, and missile strikes, burying Pakistan’s 27 years of nuclear blackmail. When a ceasefire was reached, India declared that it had only suspended Operation Sindoor. If ever subjected to a terror attack, India reserves the right to strike Pakistan whenever it chooses.

The conflict could not have come at a worse time for Pakistan. The country is facing multiple challenges to its economic and political stability. The economy is battered with several persistent structural weaknesses. High foreign debt, a dramatic drop in foreign exchange reserves, surging inflation, and overall fiscal mismanagement are telling on the nation.

Its reliance on bailout packages from international agencies has left Pakistan with conditions, among others, of austerity measures – further straining public services and sparking social discontent. In May this year, the International Monetary Fund (IMF) allotted USD 1 billion to Pakistan under the organisation’s Extended Fund Facility (EFF). It was part of a USD 7 billion bailout package the cash-strapped nation had managed to secure from the IMF last year.

The amount was sanctioned despite India’s protests, citing Pakistan’s involvement in sponsoring terror activities, like the Pahalgam attack. There always remains an apprehension that the funds could be used in nefarious activities. The IMF categorically stated that the finance is provided for the purpose of resolving balance of payments problems. Islamabad’s spending will be under scrutiny.

In this case, as pointed out on May 22 by Julie Kozack, Director, IMF Communications Department, the disbursements received under the EFF are allocated to the reserves of the central bank. She also pointed out that conditionalities laid down by the IMF provide additional safeguards in the genuine use of the money.

As part of the exercise, an IMF mission visited Islamabad between May 19 and 23, to ensure programme implementation and budget strategy for FY 2026. Such engagements will continue. Pakistan may have succeeded in finding a short breathing space, but it remains stuck in a maze of financial pitfalls. It is annually staring at defaults, with a debt-ridden, dysfunctional economy dependent on more and more loans.

A recent report put Pakistan among the world’s poorest and most vulnerable countries that will make record high debt repayments in 2025 (totalling USD 22 billion) to China. This was stated in a study, published in May by the Australian foreign policy think tank, Lowy Institute.

“Despite declining global lending,” it said, “China remains the largest bilateral lender in seven of its nine land neighbours with available debt data, those being Laos, Pakistan, Mongolia, Myanmar, Kazakhstan, Kyrgyzstan, and Tajikistan.”

Islamabad is now desperately asking Beijing for a debt reprofiling, according to media reports. Unlike a cut in the amount as happens in restructuring debt; in reprofiling, only the due date for repayment is extended.

Reports also say that even after securing the IMF bailout, Pakistan is seeking an additional USD 4.9 billion in loans from international banks to improve its foreign exchange reserves and meet external financing obligations.

Politically, there is an urgent need for more transparent democratic processes and a recalibration of civil-military relations, ensuring that institutions are strengthened rather than undermined by authoritarian impulses.

The current situation remains highly fragmented and unstable. Following contentious general elections, prolonged coalition talks and internal power struggles continue among major parties even as Shehbaz Sharif struggles to hold together his government.

Additionally, the army’s longstanding influence over political affairs has undermined democratic institutions and contributed to a climate of mistrust. Security and internal conflicts remain significant concerns for Pakistan. The country is grappling with chronic challenges posed by terror groups such as the Tehreek-e-Taliban Pakistan (TTP), and factions linked to the Islamic State (IS).

Ironically, the state had itself raised a rag-tag militia to fight against the Soviet occupation of Afghanistan in the eighties. Several reports show that Pakistan then enjoyed financial and armament support from the US. Defence minister, Khwaja Asif, recently admitted on record about the US funding and support to terrorist groups.

These groups have been undermining the state’s authority. There is evidence to prove Pakistan’s political and military authorities’ support to terror elements. International concerns regarding Pakistan’s domestic policies – ranging from terror financing to human rights abuses and suppression of dissent – have adversely influenced its diplomatic standing.

These issues complicate Pakistan’s relationships with global financial institutions and key allies, making it ever more challenging for the country to secure external support needed to implement meaningful reforms and stabilise the economy.

Addressing these intertwined problems calls for statesmanship, comprehensive reforms. Economically, Pakistan must revitalise its fiscal policies and restore confidence among the creditors. Lenders too are exerting for such reforms.

On the conflict front, better governance and an inclusive approach to counter-insurgency might help reduce the appeal of militant groups. Pakistan has no alternative to ending terror sponsorship and cooperating with India otherwise it will descend into chaos and ultimately splintered into different warlords running the country in different regions.