Following India’s decision to suspend the decades-old Indus Waters Treaty, the Karachi Stock Exchange witnessed a notable plunge, highlighting the market’s sensitivity to geopolitical tensions and potential water scarcity impacts.
BY PC Bureau
April 24, 2025 – The Pakistan Stock Exchange (PSX) witnessed a sharp downturn today, with the benchmark KSE-100 index plummeting 2.12% (2,485.85 points) to 114,740.29 within the initial five minutes of trading on April 24. Although the index recovered some ground by 3 PM IST, it still closed lower by 1,532.42 points, or 1.31%, at 115,693.72, underscoring the market’s anxiety over potential further escalation.
This marks the second consecutive day of losses for the Karachi bourse. On Wednesday, the KSE-100 had already slipped by 1,204 points following the International Monetary Fund’s (IMF) downward revision of Pakistan’s GDP growth forecast for FY25 to 2.6%, citing persistent fiscal risks and external vulnerabilities.
Pakistan stock market falls over 2% after India suspends Indus Waters Treaty over Pahalgam terror attack
The Pakistan Stock Exchange (PSX) saw a sharp decline at Thursday’s open, after India announced a string of strict diplomatic actions against Pakistan in response pic.twitter.com/lbFjZJTKlU
— Chris Wealth Management Pvt Ltd (@chriswealthman1) April 24, 2025
The latest market slump is largely attributed to India’s decision to suspend the Indus Waters Treaty (IWT) in the aftermath of the Pahalgam terror attack, which tragically claimed the lives of 26 individuals. This move has sent significant tremors through Pakistan’s economy and financial markets.
The suspension of the IWT, a 64-year-old water-sharing agreement brokered by the World Bank in 1960, comes as a direct response to the recent terrorist incident in Pahalgam, Kashmir. The treaty governs the distribution of water from the Indus River system, a critical resource for Pakistan’s agricultural sector and major urban centers.
ALSO READ: How the IWT Suspension Fits India’s Post-Pahalgam Security Calculus
Adding to the economic concerns, the Asian Development Bank (ADB) has also lowered Pakistan’s 2025 GDP growth forecast to 2.5%, a decrease from the 3% projected in December 2024. Both the IMF and ADB projections fall short of the Pakistani government’s 3.6% growth target for the current fiscal year.
Economic Repercussions Fuel Investor Jitters
The Indus River system irrigates approximately 80% of Pakistan’s cultivated land, making it indispensable for the nation’s food security. The agricultural sector contributes roughly 23% to Pakistan’s national income and supports a substantial portion of its rural population. The potential disruption to water supply due to the treaty’s suspension has ignited concerns regarding:
- Reduced Crop Yields: Water scarcity could lead to decreased agricultural output, impacting food availability and the livelihoods of farmers.
- Water Shortages: Major urban centers like Karachi, Lahore, and Multan heavily rely on the Indus River system for their water needs. Any reduction in water flow could trigger severe water crises.
- Economic Instability: Given the interconnectedness of agriculture with other sectors, a downturn in this crucial area could have far-reaching consequences, including increased unemployment and inflation.
ALSO READ:Â PM Modi Vows to Tracks and Hunt Pahalgam Attackers
Investor Confidence Takes a Hit
India’s swift and strong response, including the closure of the Attari border crossing and the cancellation of visas for Pakistani nationals, has further escalated geopolitical tensions. This has understandably made investors wary, triggering the sell-off in the stock market. The apprehension of prolonged conflict or further retaliatory measures has fostered an environment of uncertainty, leading investors to adopt a cautious “wait-and-see” stance.
While the Indus Waters Treaty lacks a clause for unilateral termination, India’s suspension of the agreement casts a shadow over the future of water sharing. Pakistan may explore the treaty’s dispute resolution mechanisms, potentially involving the World Bank or the Permanent Court of Arbitration. However, the immediate economic ramifications of India’s action are already being felt in the financial markets.
ALSO READ:Â Cry for Revenge Resounds Amid Outrage Over Pahalgam Terror Attack
The upcoming days and weeks will be critical in observing the unfolding situation and the measures the Pakistani government will undertake to mitigate the potential economic fallout from the Indus Waters Treaty suspension. The stability of the share market will likely remain closely tied to developments on the diplomatic and water-sharing fronts.
