Bailouts, bombs and blunders: Why Pakistan begs and borrows while India builds

A man wearing a mask stands next to Pakistan's national flag while celebrating the country's Independence Day in Islamabad on August 14, 2023. (File Photo)

India and Pakistan – 77 years after gaining independence together – now stand on opposite ends of the economic spectrum. One is the world’s fourth largest economy and a rising global power; the other is surviving on bailouts, crippled by debt, and dependent on lifelines from China and global organisations like the International Monetary Fund (IMF) and World Bank just to stay afloat.

Its ‘ironclad friend’ China has assured to re-lend Islamabad USD 3.7 billion – in Chinese currency – in commercial loans before June end, to help it keep the foreign exchange reserves in double digits. This is yet another stopgap measure for a country that has forgotten the fundamentals of nation building. While India is attracting global investors and shaping the future of technology and trade, Pakistan is stuck in a cycle of economic collapse, political instability, and international suspicion over terror financing.

India and Pakistan: Diverging economic arcs

In 1947, India and Pakistan started from roughly the same economic base. Over the decades, however, their economic trajectories have diverged dramatically.

India today has become the world’s fourth largest economy with a GDP of over USD 4 trillion, behind only the US, China and Germany. It is projected to become the third largest economy of the world in the next two years. Its per capita income – over USD 2,700 – is also rising steadily as India industrialises, digitises, and integrates deeper into global supply chains.

Pakistan, meanwhile, continues to flounder. Its GDP hovers around USD 340 billion as of 2024, ranking it around 45th in the world. Its per capita income stands at around USD 1,500, which is nearly half of India’s. Inflation remains in double digits, and its foreign reserves barely cover two-three months of imports.

According to the IMF, India’s GDP of USD 3.9 trillion in 2024 is over 10 times that of Pakistan’s, which was at USD 373 billion in 2024. India, currently, is the world’s fastest growing economy with GDP growth projected at 6.5% this fiscal.

India's economic rise has been marked by consistent reforms, a vibrant private sector, and sustained infrastructure investment. Pakistan's economy, on the other hand, has suffered repeated balance of payment crises, political instability, and a near-total reliance on external financing.

Pakistan's self-inflicted wounds

While economic mismanagement is not uncommon across the globe, Pakistan’s additional burden is its long-standing policy of nurturing terrorism as statecraft. Groups like Lashkar-e-Taiba (LeT), Jaish-e-Mohammed (JeM), and the Haqqani Network have long enjoyed sanctuary, training, and funding in Pakistan.

The Financial Action Task Force grey-listed Pakistan in 2018 due to its failure to curb terror financing. Although Islamabad was removed from the list in 2022, it was largely seen as a geopolitical compromise. Ground realities indicate that Pakistan still shelters terror groups, many of which have targeted India and Afghanistan.

This state support for terrorism has scared off investors, hindered tourism, and attracted global sanctions. Foreign companies view Pakistan as a high-risk zone, not just economically but also in terms of security.

Moreover, frequent terror attacks within Pakistan have disrupted local economies, destroyed infrastructure, and alienated educated youth who often migrate abroad.

India’s growth story

• 1991 economic reforms: India liberalised its economy, reduced tariffs, opened up to foreign investment, and dismantled Licence Raj. This unleashed the private sector.

• IT and services boom: In the 2000s, India emerged as a global IT hub, exporting software services and creating millions of white-collar jobs.

• GST and Digital India: Over the past decade, India introduced the Goods and Services Tax (GST), digitised governance through Aadhaar and UPI, and vastly improved ease of doing business.

• Infrastructure spending: Mega projects in roads, rail, metro networks, and airports catalysed internal connectivity and employment.

• Geopolitical alignment: India aligned itself as a trusted partner in the Quad, BRICS, and G20, drawing trust, trade, and capital from the West, Japan, and Gulf nations.

Pakistan’s story is majorly marked by lost opportunities. Despite receiving billions in aid from the US post 9/11 and financial help from China and the IMF, Pakistan failed to reform its economic fundamentals. Instead, it diverted resources to bolster its military and fund terror proxies.

After facing embarrassment at the hands of New Delhi when Indian Armed Forces launched destructive strikes on its air bases earlier this month, Islamabad it set to increase its defence budget to 18% this time, despite the fact that its economy continues to remain paralyzed.

Even its once-thriving textile industry now suffers from energy shortages, lack of innovation, and loss of export competitiveness. With poor education and health indicators, Pakistan's human capital remains underdeveloped. Public debt has crossed 80% of GDP, and the country is frequently in danger of sovereign default.

What’s worse is the fact that Pakistan has become a pawn in China’s strategic ambitions. The China-Pakistan Economic Corridor (CPEC), once touted as a game changer, has largely resulted in mounting debt and little local industrial benefit.

The crises that Pakistan ignores

While Pakistan scrambles for foreign loans and blames external forces for its woes, it has completely failed to address the core issues that trap its population in poverty.

• Over 39% of its population lives below the poverty line as of 2023, according to World Bank estimates. Rural poverty is even more severe.

• Pakistan’s literacy rate hovers around 58%, among the lowest in South Asia. Female literacy rate is even worse – just 47%.

• Nearly 23 million children in Pakistan are out of school – the second-highest number in the world.

• Malnutrition affects 40% of children. Infant mortality remains high at 54 deaths per 1,000 live births.

• A 2022 UNICEF report revealed that 70% of households in Pakistan still lack access to safe drinking water.

The International Monetary Fund (IMF) has bailed Pakistan out numerous times, often under controversial circumstances. In the last 35 years, Islamabad has received 28 loans from IMF. Earlier this month, it secured its latest lifeline: a USD 1 billion disbursement under the IMF’s Extended Fund Facility (EFF), part of a broader USD 7 billion package.

These bailouts often come with promises of fiscal reforms, but few are ever implemented. And all of this happens despite Pakistan’s established links to terror networks that have claimed lives across South Asia.

The question arises: why is the IMF enabling a regime that finances terror? Part of the answer lies in geopolitical dynamics – the West's desire to prevent Pakistan from collapsing completely and falling entirely into China's lap.

China’s ‘help’

Beijing’s $3.7 billion loan this month is not an act of friendship; it's a debt trap. China has become Pakistan’s largest bilateral lender, holding over 30% of its external debt. Many of these loans come at high interest rates and are shrouded in secrecy.

By the end of 2024, Pakistan’s external debt had soared to over USD 133 billion — more than one-third of the country’s total economic output (GDP). Just paying the interest on this debt eats up 43% of the government’s total income.

Much of the Chinese investment is for infrastructure controlled by Chinese companies, not Pakistanis. From power plants to ports, Chinese firms reap the benefits while Islamabad shoulders the debt. Instead of true development partnerships, China has converted Pakistan into a vassal state.

The contrast could not be sharper. India, once clubbed with Pakistan in every Western strategic document, has decisively broken free of the comparison. It is now mentioned alongside global powers. Pakistan, meanwhile, is compared with failed states.

While India builds satellites, launches digital payment systems, and attracts global capital, Pakistan continues to harbour terror groups, print currency to pay salaries, and beg for loans from China and the IMF.

If anything, Pakistan is a textbook example of what happens when a nation prioritises ideology and militarism over economics and education. Its situation is not an accident of fate but a product of consistent policy choices.