Pakistan is facing one of its most fragile political, economic, and social crises in recent decades. With a crumbling economy, internal ethnic and provincial tensions, rising insurgencies, and a weakening central authority, speculation is growing among analysts and observers that the country might eventually break into multiple independent or semi-autonomous regions.
This article delves deeply into the current situation in Pakistan, examines the possibility of disintegration, and addresses the crucial question: Will the Pakistani stock market collapse in the event of such a breakup?
1. Current Situation in Pakistan: Political Chaos & Economic Freefall
1.1. Economic Collapse
- Pakistan’s economy is in disarray. As of mid-2025, inflation is hovering above 30%, the Pakistani Rupee is one of the worst-performing currencies globally, and foreign exchange reserves have barely been enough to cover one month’s imports.
- The country is heavily reliant on IMF bailouts, Chinese loans (CPEC), and foreign aid from Gulf nations.
- Unemployment and poverty have reached critical levels. The middle class is shrinking, and youth frustration is exploding.
1.2. Political Instability
- The ouster and repeated arrests of former Prime Minister Imran Khan and growing civil-military tensions have deeply polarized the country.
- The military, once the most stable institution, is now embroiled in internal factionalism and public mistrust.
- There is no credible political leadership that enjoys consensus across provinces.
2. Signs of Internal Fragmentation
2.1. Balochistan – The Most Likely to Break Away
- The Balochistan Liberation Army (BLA) has intensified its separatist attacks. The region is rich in minerals and strategically important (Gwadar Port), yet extremely poor and neglected.
- Anti-Punjab sentiment is widespread. Calls for “Free Balochistan” are being supported by diaspora communities abroad.
2.2. Sindhudesh Movement
- Sindhi nationalists have long accused the federal government of Punjabi domination.
- The idea of a separate “Sindhudesh” is gaining momentum in intellectual and activist circles.
2.3. Khyber Pakhtunkhwa (KPK) & Pashtun Belt
- The Pashtun Tahafuz Movement (PTM) is vocal about military atrocities and rights violations.
- There’s a historic demand for “Greater Pashtunistan”, possibly merging with Afghan territories.
2.4. Gilgit-Baltistan and PoK
- Discontent is brewing due to a lack of rights and development.
- With rising India-China tensions, this region could become a battlefield or splinter due to international pressure.
2.5. Punjab – The Power Center
- Punjab may remain the last standing unit of “original Pakistan,” but it will be isolated, surrounded by hostile or breakaway regions.
3. What Could Lead to a Breakup?
- Hyperinflation and economic collapse
- Civil war-like situation among provinces or between the military and militants
- Military weakening or internal coup within factions
- International intervention or sanctions
- A major terrorist attack blamed on Pakistani elements that invites global scrutiny
- Complete loss of control over nuclear assets—a red line for the global powers
4. Historical Parallels: 1971 Bangladesh War
- The 1971 secession of East Pakistan (now Bangladesh) shows that a breakup is not hypothetical.
- The current climate is eerily similar: economic exploitation, ethnic marginalization, and political suppression.
5. What Will Happen to the Pakistani Stock Market (PSX)?
Short-Term Outlook: Panic and Collapse
If civil war or provincial breakaways begin:
- The Pakistan Stock Exchange (PSX) will likely collapse overnight.
- There will be a massive foreign investor outflow, especially from China and the UAE.
- The KSE-100 Index could lose 50-70% of its value in weeks.
- Banks and businesses tied to national operations will face default.
Currency Freefall
- The Pakistani Rupee could enter hyperinflationary collapse, losing 90%+ of its value.
- Import-dependent sectors, including pharmaceuticals and energy, would die out.
Capital Control & Freezing of Funds
- The government or military may enforce emergency capital controls, freeze accounts, or suspend stock market trading altogether, similar to what happened in Sri Lanka or Greece during their crises.
Post-Breakup Scenario
If Pakistan splits into 4-5 parts:
- New regions may establish independent stock exchanges, but investor trust will take decades to rebuild.
- International sanctions, frozen SWIFT access, and FATF blacklisting may follow.
- CPEC (China-Pakistan Economic Corridor) would be dead. China may abandon its investments.
6. Is There a Silver Lining?
In the long-term (10–20 years), if breakaway regions like Balochistan or Sindh can achieve peace and establish resource-based economies, they might become rich independent states, especially due to gas, minerals, and ports. But this will require international recognition and internal stability, both of which are uncertain.
For now, the outlook is grim.
7. Global Implications
- India will need to be on high alert due to nuclear security concerns.
- China will likely pressure Pakistan’s military to retain control of key assets.
- The US and Gulf nations may intervene diplomatically or militarily to secure nuclear sites.
- Taliban-occupied Afghanistan could get involved in Pashtun belt areas.
Conclusion
Pakistan is standing at a historic and dangerous crossroad. While complete fragmentation is still not inevitable, the risk is real and increasing every day. The economic crisis is acting as the fuel, and ethnic-political fault lines are the matchstick.
If the nation tears apart into 4–5 regions, the Pakistani stock market will be one of the first casualties. A complete collapse of PSX, banking systems, and the currency is expected. Investors—especially international ones—should exercise extreme caution.
The coming months and years will be critical. If bold reforms and inclusive governance do not arrive soon, the map of South Asia may witness a seismic shift once again.
Disclaimer: This analysis is based on current observable trends and does not predict the future with certainty. Political developments can be fluid. Investors and policymakers must consider multiple viewpoints before concluding.
