Pakistan threatens war against India over Indus waters! But will it march towards its own collapse?

The cancellation of the Indus Waters Treaty by India following the Pahalgam terror attack has pushed South Asia into a dangerous new reality. Pakistan, heavily dependent on the Indus River system for survival, is now threatening retaliation against India. 

The situation is such that the Bilawal Zardari Bhutto on Saturday went on to say that, 'either our water or their (India's) blood will flow through it'. However, a deeper look reveals that Pakistan may not have the capacity — economically, militarily, or socially — to sustain a war over water.

Pakistani economy was pushed to the brink of collapse after the COVID-19 pandemic and is still struggling to stabilise. Even a short, limited conflict would impose severe economic costs that Pakistan is unlikely to absorb without catastrophic consequences.

The suspension of the Indus Waters Treaty (IWT) poses a major threat to Pakistan, risking a sharp decline in crop yields, food shortages and mass migrations. With over 30 per cent of its electricity dependent on Indus-fed hydro plants, reduced river flows would cripple power generation, force costly fuel imports and worsen energy shortages. Cities like Karachi and Lahore, heavily reliant on Indus tributaries, could face severe drinking water crises, sparking public unrest.

Economically, the Indus system underpins 25 per cent of Pakistan’s GDP; any disruption could slash farm exports, widen the trade deficit, and devastate rural economies. Politically, while Pakistan has labeled India's move as “water terrorism,” any initial rally in national sentiment would likely collapse under the pressure of widespread socioeconomic instability and weakened state control.

Today, due to prolonged military dictatorships, poor governance, and the pursuit of cross-border terrorism as a state policy, the country faces economic ruin. 

The country's financial health deteriorated to such an extent that Planning Minister Ahsan Iqbal appealed to citizens to reduce tea consumption in 2022, highlighting the dependency on borrowed funds even for basic imports. Inflation touched a record high of 38.5 per cent in May 2023, economic growth turned negative, and foreign reserves fell to barely sustain a few weeks of essential imports.

Economically, Pakistan is at one of its weakest points. The country’s foreign reserves barely cover a month's worth of imports, and it is heavily reliant on IMF bailouts and foreign aid. Entering a war under such economic conditions would be disastrous.

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India spends nearly 10× more on its military. In 2023 India’s defence budget was about $83.6 billion versus Pakistan’s $8.5 billion. This allows India to field more ships, aircraft, missiles and modern technology. Pakistan’s budget limits its forces to older systems (e.g. F‑16s, JF‑17s) and small-scale purchases from China and Turkey.

Pakistan’s 2024–25 defence budget is about PKR 2.13 trillion ($7.6 billion), a real increase over last year, but sharply eroded by inflation. By contrast India’s 2024–25 defence outlay is near $80 billion. The disparity means Pakistan cannot match India’s procurement or sustain a prolonged arms build-up without deep cuts elsewhere.

Pakistan is already forced to dedicate a large share of its budget to debt service and subsidies. Its defence outlay (about 7–8 per cent of GDP) crowds out social and development spending. A war would sharply increase military spending (overwhelming the budget) just as Pakistan’s economy can least afford it. Further, conflict could devastate Pakistan’s already fragile economy – even a short conflict would deter foreign investment and disrupt trade. The IMF and experts caution that any war would fatally undermine recent stabilization efforts of Pakistan's economy.

Facing a sovereign default in mid-2023, Pakistan survived through a $3 billion short-term financial bailout from the International Monetary Fund (IMF). Further financial assistance came through loan rollovers by traditional allies such as Saudi Arabia, the United Arab Emirates, and China.

Despite this relief, Pakistan’s debt-to-GDP ratio remains dangerously high at 70 per cent. Between 40 per cent and 50 per cent of government revenue is allocated for interest repayments. The country’s external financing needs are estimated at over $22 billion for the coming fiscal year, a burden that continues to strain its limited resources.

The IMF recently agreed to release $1.3 billion under a climate resilience loan programme and another $1 billion under the existing $7 billion bailout package. Though these packages offer temporary relief, they demand strict economic reforms.

Pakistan’s political landscape remains fractured after recent elections, making a unified national response difficult. The country is also battling internal challenges like terrorism in Khyber Pakhtunkhwa and Balochistan and public dissatisfaction over rising inflation.

Pakistan’s government (led by Shehbaz Sharif’s coalition) holds a slim majority and faces strong opposition. The 2023 elections were marred by controversy, and the ousted PTI party (Imran Khan’s) still has massive support and has fueled street protests. 

All these factors put together paint a grim picture for Pakistan. Its economy is fragile and debt-laden, while the military is under-resourced and its political situation is volatile. Cancelling the Indus Waters Treaty — effectively choking Pakistan’s lifeblood — would compound these crises. In such conditions, even a short conventional war with India could push Pakistan to the brink of economic collapse. Any conflict would devastate Pakistan’s agriculture, energy, and budget, while likely prompting global isolation. India, with its far larger economy and military and stronger international support, would thus hold a decisive advantage.