S&P Global Sees No Immediate Impact on Pakistan, India Sovereign Ratings Amid Rising Tensions

S&P Global Ratings has indicated that the recent military escalation between India and Pakistan has heightened regional credit risks but is unlikely to affect the sovereign credit ratings of either country in the short term. In a report, the agency described the current conflict as a temporary flare-up, expecting a period of limited and sporadic confrontations to follow. Under this outlook, S&P maintained its credit ratings for India at BBB- with a positive outlook and for Pakistan at CCC+ with a stable outlook. However, the ratings agency cautioned that the risk of miscalculations or unintended clashes could lead to a broader conflict, which would significantly increase credit risks for both nations. S&P anticipates that tensions will remain elevated over the next two to three weeks, with the potential for intensified military activity. Beyond this period, the agency expects a de-escalation, minimizing any lasting damage to the countries’ sovereign credit profiles. The report highlighted India’s strong economic growth prospects, which support ongoing fiscal improvements, while noting Pakistan’s continued focus on economic recovery and fiscal stability. Both governments, S&P noted, have strong incentives to avoid prolonged conflict. For Pakistan, extended hostilities could undermine progress in external accounts and fiscal consolidation. For India, a drawn-out confrontation could harm investor confidence and complicate efforts to attract foreign investment amid global economic challenges. The agency warned that if hostilities persist without significant de-escalation, downward pressure on the sovereign credit ratings of both countries could intensify, especially given the risks posed by accidental engagements during active combat.