Pakistan’s Economic Recovery at Risk Due to Tensions With India: Moody’s

Moody’s Ratings has warned that prolonged tensions with India could derail Pakistan’s economic recovery, disrupt fiscal consolidation, and undermine macroeconomic stability. In its latest report, Moody’s acknowledged Pakistan’s improving indicators like moderate growth, declining inflation, and rising foreign exchange reserves and progress on the current International Monetary Fund (IMF) program. However, it warned that prolonged conflict with India could restrict access to external financing and deplete reserves, which remain insufficient to meet upcoming external debt obligations. The warning follows the April 22 terror attack in Indian-Illegally Occupied Jammu and Kashmir, after which India suspended the Indus Waters Treaty and Pakistan responded by halting the Simla Agreement, closing its airspace to Indian flights, and suspending trade. Moody’s noted that India would see limited economic impact but may face fiscal pressure from increased defence spending. The agency does not expect full-scale war but anticipates periodic flare-ups, consistent with historical patterns.