With tensions between India and Pakistan refusing to die down, Moody’s has put together a detailed report comparing the economic conditions of both countries but warned Pakistan of impaired growth in the current political scenario. Although both India and Pakistan stand to lose in case of sustained escalation, ‘Pakistan has much more to lose’, as per Moody’s Ratings.
In the current scenario of sustained escalation in localized 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),” the agency said, adding that higher defence spending would potentially weigh on India’s fiscal strength and slow its fiscal consolidation. India’s macroeconomic conditions are stable and bolstered by moderating but still high levels of growth and strong public investment and healthy private consumption, said the report.
Although Pakistan’s macroeconomic conditions have been “improving”, with growth gradually rising, inflation declining and foreign-exchange reserves increasing amid continued progress in the IMF programme, the country’s foreign exchange reserves remain well below what it required to meet its external debt payment for the next few years, the agency reported.
“Our geopolitical risk assessment for Pakistan and India accounts for persistent tensions, which have, at times led to limited military response,” Moody’s said. “We assume 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,” it predicted.
The pandemic had dangerously dipped Pakistan’s economy, bringing it to the brink of bankruptcy. Last month, the International Monetary Fund (IMF) agreed to a new $1.3 billion agreement with the country and to review the ongoing 37-month bailout programme. If the board approves, Pakistan can access a new 28-month climate resilience loan programme worth $1.3 billion and also free $1 billion under its $7 billion bailout programme, the IMF said in a statement.
After the April 22 Pahalgam terror attack that killed 26 people, India had cut down diplomatic ties with Pakistan, accusing it of funding terror across borders. Amongst other steps taken, India also suspended the Indus Waters Treaty of 1960.
Ahead of the IMF’s board meeting with Pakistan’s officials on May 9 to approve its next disbursement, India announced that it will request the global lender to review Pakistan’s bailout programmes.
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