Escalating tensions would weigh on Pakistan’s progress; India to be comparatively immune: Moody’s

Moody’s Scores on Monday (Could 5, 2025) stated sustained escalation of tensions between India and Pakistan is not going to have any main financial disruption within the nation, however will probably be a setback for Islamabad as its foreign exchange reserves might come beneath stress and weigh on progress.

In its commentary titled ‘Escalating Pakistan-India tensions would weigh on Pakistan’s progress’, Moody’s stated it doesn’t count on main disruptions to India’s financial exercise as a result of it has minimal financial relations with Pakistan (lower than 0.5% of India’s whole exports in 2024).

Pahalgam terror assault updates: Could 5, 2025

On April 22, 26 individuals have been killed after terrorists opened fireplace on vacationers in Pahalgam, Jammu & Kashmir. India has recognized 5 terrorists, together with three Pakistani nationals, behind the bloodbath in Pahalgam and has pledged to take motion towards the perpetrators of the heinous act.

“Sustained escalation in tensions with India would seemingly weigh on Pakistan’s progress and hamper the federal government’s ongoing fiscal consolidation, setting again Pakistan’s progress in attaining macroeconomic stability,” Moody’s stated.

Pakistan’s macroeconomic situations have been enhancing, with progress steadily rising, inflation declining, and foreign-exchange reserves growing amid continued progress within the IMF programme.

“A persistent improve in tensions might additionally impair Pakistan’s entry to exterior financing and stress its foreign-exchange reserves, which stay properly beneath what’s required to fulfill its exterior debt cost wants for the subsequent few years,” Moody’s stated.

The Government Board of the Worldwide Financial Fund (IMF) is scheduled to fulfill Pakistani officers on Could 9 to guage a recent $1.3 billion funding association for Pakistan beneath its local weather resilience mortgage programme. It can additionally assess an ongoing $7 billion bailout bundle.

Sources have stated that India will probably be asking world multilateral businesses, together with the IMF, to re-examine funds and loans offered to Pakistan.

Moody’s stated the macroeconomic situations in India could be secure, bolstered by moderating however nonetheless excessive ranges of progress amid sturdy public funding and wholesome non-public consumption.

“In a state of affairs of sustained escalation in localised tensions, we don’t count on main disruptions to India’s financial exercise as a result of it has minimal financial relations with Pakistan. Nonetheless, increased defence spending would probably weigh on India’s fiscal energy and sluggish its fiscal consolidation,” Moody’s stated.

Moody’s stated its geopolitical danger evaluation for Pakistan and India accounts for persistent tensions, which have, at occasions, led to restricted navy responses.

“We assume that flare-ups will happen periodically, as they’ve (been) all through the 2 sovereigns post-independence…, however…it is not going to result in an outright, broad-based navy battle,” it added.

Moody’s has a ‘Caa2’ ranking on Pakistan, which implies the debt issued by the sovereign is of poor high quality with very excessive default dangers.

Moody’s charges India at ‘Baa3’, which is the bottom investment-grade ranking.

Citing “cross-border linkages” to the April 22 assault, India has promised extreme punishment to these concerned within the strike.

Following the lethal terror assault, India and Pakistan’s diplomatic relations have deteriorated. India suspended the Indus Waters Treaty of 1960, which might severely cut back Pakistan’s water provide, shut down the one operational land border crossing at Attari and downgraded diplomatic ties.

In response, Pakistan suspended the 1972 Simla peace treaty with India, halted bilateral commerce and closed its airspace to Indian airways.

Final week, India imposed a ban on the import of products originating from or passing by Pakistan, halted the change of mail and parcels, and prohibited the entry of Pakistani ships at Indian ports in recent punitive measures towards Islamabad.

Many world powers, together with the U.S. and European Union, have referred to as on each India and Pakistan to de-escalate tensions whereas unequivocally condemning the phobia strike.

India’s exports to Pakistan in April-January 2024-25 stood at $447.65 million, whereas imports have been meagre $0.42 million. These imports have been restricted to area of interest objects like figs ($78,000), Basil and Rosemary herbs ($18,856), sure chemical substances, and Himalayan pink salt. The imports have been $2.88 million in 2023-24.