Moody’s Says Sustained Indo-Pak Tensions To Hit Pakistan’s Economy, Affect Fiscal Position
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A persistent increase in tensions may impair Pakistan’s access to external financing and pressure its forex kitty, which already remains well below its requirements, says Moody’s.
Tensions between India and Pakistan increased after the recent deadly terror attack on April 22 in Pahalgam that killed 26 people. (Representative image)
Global ratings agency Moody’s on Monday said sustained escalation in tensions with India would likely hit Pakistan’s economy and hamper the government’s ongoing fiscal consolidation. It said the Indo-Pak tensions could impair Pakistan’s access to external financing and pressure its foreign exchange reserves, which already remain well below what is required to meet its external debt payment needs for the next few years.
“A persistent increase in tensions could 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,” Moody’s said in its latest report.
Sustained escalation in 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, it added.
Moody’s said the ongoing tensions are also likely to impact Pakistan’s progress on the IMF programme, apart from increasing external debt pressure.
The IMF’s executive board is scheduled to meet on May 9. It is expected to review the ongoing $7 billion bailout package for Pakistan.
Tensions between India and Pakistan increased after the recent deadly terror attack on April 22 in Pahalgam that killed 26 people, prompting India to take a number of steps against Pakistan, including stopping bilateral trade and halting cargo movement through the Attari border, among other steps.
‘India’s Macroeconomic Conditions Would Be Stable’
On India, Moody’s said India’s economy is expected to remain relatively stable, amid low trade exposure to Pakistan (less than 0.5 per cent of total exports in 2024) and supported by public investment and private consumption.
“Comparatively, the macroeconomic conditions in India would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption,” Moody’s said in the report.
It added that in scenario of sustained escalation in localised tensions, it does not expect major disruptions to India’s economic activity because it has minimal economic relations with Pakistan (less than 0.5 per cent of India’s total exports in 2024).
“However, higher defence spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation,” Moody’s stated.
The IMF Executive Board is scheduled to meet on May 9. It will review the ongoing $7 billion bailout package for Pakistan.
Pakistan’s Stock Market Crashes
Pakistan’s benchmark KSE-100 index tumbled by over 7,100 points, nearly 6 per cent, between April 23 and April 30, shaken by the escalating geopolitical crisis triggered by the deadly April 22 terror attack in Pahalgam, which claimed 26 lives. The market rout underscores investor unease over mounting tensions between India and Pakistan.
The April 22 incident, allegedly executed by Pakistan-backed militants targeting tourists in the Baisaran meadow of Pahalgam, has prompted a series of retaliatory moves by India. New Delhi has suspended the Indus Waters Treaty, shut down the Integrated Check Post at Attari, ordered a reduction in diplomatic staff at respective High Commissions, and granted the military unrestricted authority to decide on the timing and nature of its response.
Prime Minister Narendra Modi reportedly told senior defence officials that the armed forces have full autonomy in choosing their response, including targets and strategy.
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