How Pakistan is footing India's arbitration bill over the Indus Waters Treaty

Pakistan's attempt to pursue international arbitration against India over the Indus Waters Treaty (IWT) has ended up costing Islamabad, with the country now paying not only its own legal expenses but also India's share of the arbitration costs after New Delhi withdrew from the proceedings.

According to an Economic Times report, Pakistan has already spent more than $600,000 to keep the arbitration process alive before the Permanent Court of Arbitration (PCA), with costs expected to rise as hearings continue.

India's decision to place the treaty in abeyance after the April 22, 2025, Pahalgam terror attack lies at the heart of the dispute.

Why Pakistan is paying India's share

Under the Indus Waters Treaty's dispute resolution mechanism, both India and Pakistan are expected to contribute equally towards arbitration costs.

However, India has stayed away from all proceedings before both the Permanent Court of Arbitration and the Neutral Expert after suspending cooperation under the treaty in the aftermath of the Pahalgam terror attack.

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Since Pakistan has chosen to continue pursuing arbitration, it has been covering the entire financial burden to ensure the proceedings do not stop.

The Economic Times reported that the average cost of PCA proceedings is around $300,000 per country. With India refusing to participate or contribute, Pakistan has effectively paid both sides' expenses, taking the overall bill to more than $600,000.

Why India walked away from the proceedings

The disagreement centres on India's Kishanganga and Ratle hydroelectric projects on the western rivers governed by the Indus Waters Treaty.

Pakistan argues that the design of the two projects breaches treaty provisions and therefore sought arbitration before the Permanent Court of Arbitration.

India has consistently maintained that such technical disputes fall within the jurisdiction of a Neutral Expert rather than a Court of Arbitration. It has also argued that parallel proceedings before both forums violate the treaty's dispute resolution framework.

India had already been boycotting the Pakistan-initiated PCA proceedings since 2023 because Neutral Expert proceedings were underway simultaneously. After New Delhi placed the treaty in abeyance in May 2025 following the Pahalgam attack, Pakistan revived the arbitration process.

India has maintained that the treaty will remain in abeyance until Pakistan “credibly and irrevocably" ends support for cross-border terrorism.

New Delhi also rejects the legitimacy of the tribunal, describing the Permanent Court of Arbitration as an "illegally constituted" body and insisting that any rulings issued by it are "null and void".

Arbitration continues despite India's absence

International arbitration rules allow proceedings to continue even if one party refuses to participate, provided the tribunal determines it has jurisdiction.

In June 2025, the Permanent Court of Arbitration ruled that it was competent to hear Pakistan's case and stated that the Indus Waters Treaty did not permit the "unilateral" suspension of the agreement.

Since then, the PCA has conducted at least eight hearings, all of which India has boycotted.

In its August 8, 2025, "Award on Issues of General Interpretation of the Indus Waters Treaty", the tribunal noted that India neither participated in establishing the court nor attended its meetings, adding that "it has not advanced any of the funds requested by the court toward the costs of the arbitration".

Later, in its May 15, 2026 order on "maximum pondage", which favoured Pakistan, the PCA said it "reserves the costs of the proceedings to be awarded by the court pursuant to Paragraph 26 of Annexure G to the Indus Waters Treaty 1960 for determination in the Court's Final Award."

What happened with the Neutral Expert process

Unlike the PCA proceedings, India initially continued participating in the Neutral Expert mechanism.

According to the Economic Times, New Delhi paid its full financial contribution towards the Neutral Expert process through July 2025. Following the Pahalgam terror attack, however, India formally requested a pause in those proceedings as well.

India subsequently stayed away from the Fourth Meeting of the Neutral Expert held between November 17 and 21, 2025, the fifth meeting in May 2026 and other subsequent proceedings.

Pakistan is understood to have borne those costs too.

What happens next

For now, India and Pakistan remain on completely different legal and diplomatic paths.

Pakistan continues to pursue arbitration over the Kishanganga and Ratle projects despite the growing financial burden.

The costs also come as Islamabad remains under a $7-billion IMF Extended Fund Facility, its 25th IMF programme since joining the lender in 1950.

While the IMF projects Pakistan's economy will grow by 3.6 per cent in 2026 with average inflation at 7.2 per cent, the country continues to operate under strict fiscal reform conditions and has outstanding IMF credit exceeding SDR 7.1 billion (roughly $9-10 billion).

India, meanwhile, continues to reject the tribunal's authority, refuses to recognise its rulings, and insists that the Indus Waters Treaty will remain in abeyance until Pakistan addresses New Delhi's concerns over cross-border terrorism.

As long as those positions remain unchanged, Pakistan is likely to continue shouldering the entire cost of arbitration if it wishes to keep the proceedings moving.

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With inputs from agencies