Economic Warnings Amid Rising Tensions

Moody's Ratings has issued a stark warning about the potential economic fallout for Pakistan if tensions with India continue to escalate. The agency highlights concerns over Pakistan's growth, fiscal consolidation, and macroeconomic stability, contrasting it with India's relatively stable outlook.

Pakistan's Precarious Position

With a speculative grade credit rating of Caa2+, Pakistan's economy shows weak fundamentals. Despite recent improvements in macroeconomic conditions, such as rising growth and declining inflation, the country remains vulnerable. Moody's points out that sustained tensions could impair Pakistan's access to external financing and pressure its foreign-exchange reserves.

India's Economic Resilience

In contrast, India's economy is expected to remain stable, supported by strong public investment and healthy private consumption. Moody's notes that India's minimal economic relations with Pakistan mean that any escalation would have a negligible impact on its economic activity.

Market Reactions and Geopolitical Risks

The tension has already affected Pakistan's stock market, with the KSE-100 index experiencing significant losses. Moody's assessment assumes that while flare-ups may occur, they are unlikely to lead to an outright military conflict, maintaining a cautious outlook for both countries.