Daijiworld Media Network- New Delhi
New Delhi, May 6: As tensions mount in the subcontinent following the April 22 Pahalgam terror attack, global credit rating agency Moody’s has issued a stern warning to Pakistan: escalating hostilities with India could carry massive economic consequences, imperiling the nation’s fragile financial recovery.
The warning came on the same day Pakistan’s military announced the successful test of a Fatah series surface-to-surface missile with a range of 120 km, a move seen by many as provocative amidst an already volatile regional atmosphere.
Moody’s said that a prolonged standoff with India could strain Pakistan’s access to external financing, jeopardising the country’s delicate macroeconomic progress under the International Monetary Fund (IMF) programme. “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation,” the agency cautioned.
Pakistan had secured a USD 7 billion bailout from the IMF last year, and continues to be supported by multilateral institutions including the Asian Development Bank (ADB), which has so far committed USD 43.4 billion to Pakistan across 764 projects. As of late 2024, the ADB's sovereign portfolio in Pakistan includes 53 active loans and three grants worth USD 9.13 billion.
However, in light of recent geopolitical developments, India has urged multilateral bodies to re-evaluate financial assistance to Pakistan, labelling its neighbour a “rogue state” that allegedly sponsors terrorism. Indian officials have stepped up diplomatic efforts to rally global opinion against continued aid to Islamabad.
Moody’s observed that Pakistan’s economy had shown gradual signs of recovery, with growth inching upwards, inflation easing, and forex reserves stabilising. But it stressed that an escalation could reverse these gains:
“A persistent increase in tensions could impair Pakistan’s access to external financing and pressure its foreign exchange reserves, which remain well below the level required to meet its external debt obligations over the coming years.”
In contrast, the agency noted that India’s macroeconomic stability remains intact, buoyed by strong public investment, robust domestic consumption, and moderate yet resilient economic growth.
Pakistan’s Information Minister recently made claims of credible threats of a possible Indian military strike — assertions that only add to regional uncertainty. While both nations have refrained from direct confrontation, the rhetoric and strategic posturing have intensified since the Pahalgam attack.
Analysts warn that unless cooler diplomatic heads prevail, the economic costs of conflict may be catastrophic, especially for Pakistan — a country still grappling with deep-rooted fiscal vulnerabilities.
With geopolitical stakes high and economic fragility looming, South Asia watches anxiously for signs of either de-escalation — or disaster.