Economic Tensions Between Pakistan and India Escalate

Moody's Ratings has issued a stark warning about the economic implications of ongoing tensions between Pakistan and India, suggesting that Pakistan stands to lose more economically. The global rating agency highlighted that prolonged tensions could severely impact Pakistan's economic growth and hinder its fiscal consolidation efforts.

Pakistan's Economic Challenges: Moody's points out that while Pakistan has shown some positive economic indicators, such as gradual growth improvement and decreasing inflation rates, the ongoing tensions could restrict its ability to secure external financing and strain its already insufficient foreign-exchange reserves.

India's Robust Economic Outlook

In contrast, India's economy remains robust, buoyed by steady growth rates, significant public sector investments, and strong consumer spending. The assessment notes that India's minimal economic relations with Pakistan mean that the tensions are unlikely to disrupt its economic activity significantly.

Military Expenditure Concerns: However, Moody's also warns that increased military spending could affect India's fiscal health and slow down its fiscal consolidation process.

Recent Measures and Responses

Following recent escalations, the Indian government has implemented several economic countermeasures against Pakistan, including a comprehensive ban on Pakistani imports and restrictions on maritime and airspace access. Pakistan has responded by suspending the 1972 Simla peace treaty and restricting trade and airspace access for India.