Tensions between India and Pakistan have spilled over into the financial markets. Shares at the Pakistan Stock Exchange (PSX) plunged over 1,000 points on Thursday as tensions with India escalated following the Pahalgam terror attack on 22 April 2025 that killed 26 civilians.
India responded by downgrading diplomatic ties with Pakistan, expelling military attachés, suspending the Indus Water Treaty of 1960, and shutting down the Attari land-transit post. Fresh on the heels of India’s retaliatory diplomatic measures, the KSE-100 index dropped by 1,086.51 points to 116,139.63 by mid-morning.
Earlier in January this year, the International Monetary Fund (IMF) cut Pakistan’s economic growth forecast added to concerns about the country’s financial outlook. In its latest update, the IMF projected growth of just 2.6 per cent for the current fiscal year and 3.6 per cent for the next. Inflation is also expected to rise with estimates at 5.1 per cent and 7.7 per cent for the current and next year.
The Pahalgam attack is the deadliest since the Pulwama incident in 2019 in terms of casualties. Back then, on February 14, 2019, a suicide bomber targeted a convoy of Indian security forces on the Jammu-Srinagar National Highway in Pulwama district, killing at least 40 CRPF personnel.
In response to the Pulwama terror attack, the Indian Air Force carried out an air strike on a terrorist camp in Pakistan’s Balakot region. India claimed the operation killed several terrorists and destroyed key training facilities.