New Delhi— Global credit ratings agency Moody’s has reaffirmed confidence in India’s macroeconomic stability even amid escalating tensions with Pakistan following the deadly terror attack in Pahalgam that claimed 26 civilian lives.
In a report released Monday, Moody’s stated that India’s economic fundamentals remain strong, driven by robust public investment and resilient private consumption. While an increase in defense spending could temporarily slow fiscal consolidation, the agency does not foresee any major disruption to India’s economic activity—even in the event of sustained tensions with Pakistan.
“In a scenario of continued localized conflict, India’s economy is likely to remain largely unaffected due to minimal economic ties with Pakistan, which account for less than 0.5% of India’s total exports in 2024,” the report said.
By contrast, Pakistan’s fragile economy could face severe consequences from any prolonged escalation. With foreign exchange reserves hovering just above $15 billion—far below what’s needed to meet upcoming debt obligations—Pakistan remains highly vulnerable. Moody’s warned that further flare-ups could jeopardize the country’s access to external financing and stall its already strained fiscal consolidation efforts.
India, on the other hand, is in a far more secure position, with foreign exchange reserves exceeding $688 billion. “India’s macroeconomic outlook remains stable despite geopolitical challenges, underpinned by strong domestic demand and strategic capital investments,” the report noted.
Moody’s also pointed to Pakistan’s ongoing financial struggles, including its near-default status in 2023 that led to a $3 billion bailout from the International Monetary Fund. The country is currently seeking an additional $1.3 billion climate resilience loan to stay afloat.
While the agency expects occasional flare-ups between India and Pakistan, it does not anticipate a full-scale military conflict. “Our geopolitical risk assessment reflects the historical pattern of limited military engagements between the two countries. We expect tensions to persist, but not escalate into a broader war,” Moody’s said.
The assessment underscores a stark economic divide: India’s growing fiscal strength and global investor confidence versus Pakistan’s mounting vulnerabilities amid political and financial instability. (Source: IANS)
