Moody's contrasts India's stable economy with cash-strapped Pakistan's as tensions rise

New Delhi, May 5 (IANS) Global ratings agency Moody's on Monday said it sees India's macroeconomic conditions as remaining stable even if tensions with Pakistan rise after the horrific terror attack at Pahalgam in which 26 civilians were shot dead.

However, sustained escalation in tensions with India would likely hit Pakistan’s economy and hamper the government’s ongoing fiscal consolidation goals, the Moody's report states.

The report points out that amid heightened geopolitical posturing, further flare-ups could impair access to external financing and put additional pressure on Pakistan’s foreign-exchange reserves, which, at just over $15 billion, remain far below what is required to meet external debt obligations in the coming years.

In contrast, India’s reserves are robust, exceeding $688 billion. The macroeconomic conditions in India, Moody’s noted, remain stable due to strong public investment and resilient private consumption, despite the possibility of higher defence spending slowing its fiscal consolidation.

According to the report, comparatively, the macroeconomic conditions in India would be stable, bolstered by moderating but still high levels of growth amid strong public investment and healthy private consumption.

“In a scenario of sustained escalation in localised tensions, we do not expect major disruptions to India's economic activity because it has minimal economic relations with Pakistan (less than 0.5 per cent of India's total exports in 2024). However, higher defence spending would potentially weigh on India's fiscal strength and slow its fiscal consolidation," the report states.

Pakistan, however, is confronted by a precarious situation on the economic front. The country was on the brink of sovereign default in 2023, and had to be bailed out by a $3 billion IMF loan. The country is still critically dependent on this financial lifeline and is desperately trying to raise another $1.3 billion climate resilience loan.

Moody's expects periodic India-Pakistan flare-ups but does not see this escalating into a broader military conflict.

"Our geopolitical risk assessment for Pakistan and India accounts for persistent tensions, which have, at times, led to limited military responses. We assume that flare-ups will occur periodically, as they have throughout the two sovereigns' post-independence history, but that they will not lead to an outright, broad-based military conflict," it said.

--IANS

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