Sustained Pakistan-India tensions could derail Islamabad's economic recovery, warns Moody's
Moody's Ratings, previously known as Moody's Investors Service, has warned that a 'sustained escalation in tensions with India would likely weigh on Pakistan's growth' and hamper Islamabad's ongoing fiscal consolidation, 'setting back Pakistan's progress in achieving macroeconomic stability'.
The global credit rating agency, in its report on Monday, noted that Pakistan's macroeconomic conditions have been improving, with growth gradually rising, inflation declining, and foreign-exchange reserves increasing amid continued progress in the International Monetary Fund (IMF) programme.
However, it cautioned that 'a persistent increase in tensions could also impair Pakistan's access to external financing and pressure its foreign-exchange reserves, which remain well below what is required to meet its external debt payment needs for the next few years.'
The statement comes amid a sharp escalation of tensions between the two nuclear-armed neighbours following the 22 April deadly attack by suspected militants on tourists in the Indian-Illegally Occupied Jammu and Kashmir (IIOJK) Pahalgam area.
'Following the attack, India and Pakistan's diplomatic relations have deteriorated,' said Moody's.
India suspended the Indus Waters Treaty of 1960, which could severely reduce Pakistan's water supply. In response, Pakistan suspended the 1972 Simla peace treaty with India, halted bilateral trade and closed its airspace to Indian airlines, it added.
On the other hand, macroeconomic conditions in India 'would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption'.
'In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan (less than 0.5% of India's total exports in 2024).
'However, higher defence spending would potentially weigh on India's fiscal strength and slow its fiscal consolidation,' it stated.
India-Pakistan tensions hit tourism in Kashmiri valley
Moody's assumed that 'flare-ups will occur periodically, as they have throughout the two sovereigns' post-independence history, but that they will not lead to an outright, broad-based military conflict'.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
an hour ago
- Business Recorder
Pakistan economy witnesses stability: Tarar
LAHORE: Minister for Information and Broadcasting Attaullah Tarar has said the country's economy has witnessed stability due to prudent policies of the government. 'The government's entire focus is now on economy,' Tarar said, adding: 'Pakistan has achieved great success under the dynamic leadership of Prime Minister Shehbaz Sharif and Field Marshal Syed Asim Munir, Chief of Army Staff.' Talking to media, Tarar said a befitting response was given to the Indian blatant aggression against Pakistan due to the comprehensive strategy of the Field Marshal. He said the friendly countries also extended full support to Pakistan during Pak-India tension. Attaullah Tarar said Pakistan has made significant progress at diplomatic front and the entire world acknowledged Pakistan's success. Regarding the Prime Minister's recent visit to Saudi Arabia, he termed it highly successful. He said the Prime Minister during the Eid days, held telephonic conversations with leaders of different Muslim countries and to extend them warm Eid greetings. He added the Prime Minister also telephoned political leadership of the country, including the Governors, the Chief Ministers and the Federal Ministers and extended warm Eid greetings to them. Moreover, Prime Minister Shehbaz Sharif Sunday held a telephonic conversation with Federal Minister for Overseas Pakistanis and Human Resource Development Chaudhry Salik Hussain. The PM extended heartfelt Eid-ul-Azha greetings to the federal minister. He also conveyed special Eid wishes for Pakistan Muslim League-Q President Chaudhry Shujaat Hussain. He inquired about Chaudhry Shujaat's health and prayed for his swift recovery, expressing his sincere well wishes. Chaudhry Salik Hussain, in return, conveyed Eid-ul-Azha greetings to Prime Minister Shehbaz Sharif and thanked him for his sentiments. Copyright Business Recorder, 2025
Business Recorder
an hour ago
- Business Recorder
Mild bearish bias for Indian rupee on dollar strength; US-China talks eyed
MUMBAI: The Indian rupee will likely see slight pressure on Tuesday in the wake of a mostly firm US dollar, while the market focuses on the outcome of the US-China trade talks. The one-month non-deliverable forward indicated an open in the 85.63-85.66 range versus 85.62 in the previous session. The dollar index was up 0.24% on the day, while the majority of the Asian currencies were slightly weaker. 'There's not much happening in Asia and the rupee anyway is essentially stuck in a narrow band,' said a currency trader at a Mumbai-based bank. 'It'll likely be a session with a 20-paisa range at most,' he said, adding that the bias, if any, leans modestly to the downside for the rupee. The Reserve Bank of India's (RBI) larger-than-expected 50-basis-points interest rate cut on Friday has had little impact on the rupee so far, the trader pointed out. The currency is marginally higher than it was before the RBI's outsized cut. The market's attention is firmly fixed on updates from London, where the US and Chinese officials are holding trade talks that are aimed at easing trade tensions between the world's two largest economies. Indian rupee back on the ropes after US yields spike post jobs data On Monday, US President Donald Trump struck an optimistic tone, saying his administration was doing well and that he had received 'good reports' on the progress of the discussions. The meeting between the officials of the two countries is set to extend to a second day on Tuesday, with analysts noting that while headline risks around US trade policy have diminished, significant concerns still persist. The uncertainty remains elevated on US trade policy amid concerns about the timeline of any bilateral trade deals and the legality of tariffs following the US Court of International Trade ruling that declared most tariffs illegal, ANZ Bank said.
Business Recorder
an hour ago
- Business Recorder
Indian shares set to open higher on trade optimism, RBI policy support
India's benchmark indexes are poised to open higher on Tuesday, buoyed by optimism around US-China trade talks and domestic policy support. The Gift Nifty futures were trading at 25,247 as of 7:59 a.m. IST, indicating that the Nifty 50 will open above Monday's close of 25,103.20. The benchmark has risen 2.3% in four sessions and logged its highest close for 2025 on Monday. 'Markets are continuing their upward momentum, buoyed by supportive domestic monetary policy and favourable global cues,' Bajaj Broking Research analysts said in a note. Indian shares open higher on global tailwinds, RBI policy support Other Asian markets opened higher, with the MSCI Asia ex-Japan index gaining 0.5%. Wall Street equities closed mostly higher overnight and the US dollar retreated as US-China talks began in London, aimed at mending a trade dispute that has rattled financial markets for much of the year. US President Donald Trump said he was getting good reports on progress in trade negotiations. Expectations of cooling global trade tensions and bumper monetary policy support from the Reserve Bank of India have aided a rally, two analysts said. This was reflected in the market as both foreign portfolio investors (FPI) and domestic institutional investors (DII) remained net buyers of Indian shares on Monday, with net inflows of 19.93 billion rupees ($232.7 million) and 35.04 billion rupees, respectively.
