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Could the Kashmir Issue Have Any Economic Impact on Pakistan?

Source: Aljazeera.com

Tensions continue to remain elevated as the conflict over the entire erstwhile princely state of Jammu and Kashmir between India and Pakistan has no end in sight. The end of August 2019 marks a further escalation in the problem, despite positive words from the US President Donald Trump, who tries to reconcile both Imran Khan and Narendra Modi.

Could tensions continue higher?

As FINQ news recently reported, the India stock exchange had been trading higher, but not the same can be said about the Pakistan market, which had been negatively impacted by the August 5th surprise move of Narendra Modi, who had changed the constitutional status of Jammu & Kashmir. The MSCI Pakistan index declined by 11% in Us dollar terms in the two weeks following the announcement.

Pakistan’s PM Imran Khan changed his stance towards India, labeling that his repeated peace overtures to his Indian counterpart Narendra Modi were taken as “Pakistan’s weakness”. He had also stated that no more talks will take place, showing his frustrations during an interview with The New York Times. Interestingly, both countries were close to assembling a meeting between their rulers at the sidelines of the September UN General Assembly, which will take place in New York in a few weeks.


Imran launched several attacks at his Indian counterpart, labeling him as an Adolf Hitler, showing his sense of betrayal after India abrogated the Article 370.

Pakistan makes his move

In an attempt to gain competitive advantage, Pakistan had already announced steps to put expedite projects under China’s Belt and Road Initiative. On August 8th, three days after India made its controversial move, Pakistan’s National Development Council approved the formation of China-Pakistan Economic Corridor (CPEC) Authority, a decision viewed as an attempt to get China’s support. The decision took everyone by surprise, given the country had cut funding for CPEC projects.

It may not provide the expected results, given that China also claims the Shaksan Valley and Aksai Chin. However, Pakistan may still benefit economically, if investments will be made efficiently. Still heightened uncertainty in the region may not start to weight on economic sentiment, as long as there won’t be any sign both countries are willing to compromise. In order to not further inflict pain on each other, Pakistan and India should engage in a negotiation process where both sides will end up positively, and a common solution will be found.

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