May 8, 2025
ISLAMABAD – Escalating tensions with India could pose a significant threat to Pakistan’s already strained economy. Comparatively, the macro-economic conditions in India would be stable with no expected disruptions to its economic activity, global ratings firm Moody’s said on Monday.
”Escalating Pakistan-India tensions triggered by reported Indian military action, pose a significant threat to Pakistan’s already strained economy. Comparatively, the macro-economic conditions in India would be stable with no expected disruptions to its economic activity,” Moody’s said in its report ‘Escalating Pakistan-India tensions would weigh on Pakistan’s growth’.
The rating agency warned that rising tensions could hurt Pakistan’s access to external financing, putting pressure on already low forex reserves, well below what’s needed to meet debt payments in the coming years. “Escalating tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability,” the agency stated.
It warned that a prolonged crisis could strain the country’s ability to secure vital external funding. “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 report anticipated.
The warning comes at a delicate moment for Pakistan’s economy when the neighbouring country is seeking debt relief and further IMF assistance to manage a large external debt burden.
On India’s side, Moody’s said there would be a limited economic disruption due to minimal trade ties with Pakistan accounting for less than 0.5 per cent of India’s total exports in 2024. “In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India’s economic activity,” the report added.
However, the rating agency cautioned that an extended standoff could have fiscal implications for India. “Higher defence spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation,” it said.
Terrorists linked to Pakistani outfit Lashkar-e-Taiba had on April 22 opened fire in the picturesque Baisaran meadow on April 22, killing 26 innocent civilians. Following the attack, India has initiated a series of diplomatic offensives against Pakistan, including the suspension of the Indus Waters Treaty. The same day, India revoked most visas issued to Pakistanis, including medical visas. The Wagah-Attari crossing was also closed, bringing trade with Pakistan to a grinding halt.
Later India also banned imports as well as incoming mail and parcels from Pakistan and barred the docking of ships from the country at all Indian ports.