Moody’s on India-Pakistan Tensions: Impact on Pakistan
Why in the news
Moody’s Ratings assessed how the India-Pakistan standoff after the Pahalgam attack could affect both economies, concluding that Pakistan is far more exposed.
Key facts
- Pakistan’s forex reserves: $15.25 billion, not enough to cover external debt payments in the coming years.
- IMF bailout: $7 billion, secured September 2024, now under strain.
- Prolonged tension may slow growth, delay fiscal consolidation and discourage foreign investment in Pakistan.
- India suspended the Indus Waters Treaty (1960) after the April 2025 Pahalgam terror attack; Pakistan suspended the 1972 Simla agreement in response.
- Moody’s expects occasional flare-ups but no broad military conflict.
| Aspect | Pakistan | India |
|---|---|---|
| Outlook | Growth and stability at risk; external financing harder | Relatively stable |
| Drivers | Weak reserves, strained IMF programme | Public investment, private consumption |
| Risk | Delayed fiscal consolidation | Higher defence outlay may slow consolidation |
| Growth view | Further compromised | 5.5% to 6.5% for 2025 |
Significance
- Tensions are unlikely to disrupt India’s economic activity materially.
- For India the main worry is the budget deficit and fiscal path, not growth.
Exam angle
- Agency: Moody’s Ratings.
- Treaties suspended: Indus Waters Treaty 1960 (by India) and Simla agreement 1972 (by Pakistan).
- Pakistan’s IMF package: $7 billion, September 2024.