Moody’s warns Pakistan of huge cost over escalation with India

On a day when the Pakistan army said it had tested a Fatah series surface to surface missile with a range of 120 km, Moody’s warned India’s neighbour of massive economic costs in case of sustained tensions following the April 22 Pahalgam terror attack.z

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Moody’s cautioned Pakistan of strain on external financing access should tensions with India rise.

The credit rating agency’s assessment comes at a time when India is urging multilateral agencies including the International Monetary Fund to review aid to Pakistan which it has described as a rogue state fuelling global terrorism and one to which the world can no longer turn a blind eye.

Pakistan had received a USD 7 billion bailout package from the IMF last year.

Asian Development Bank has as of the end of 2024 committed 764 public sector loans, grants and technical assistance amounting to USD 43.4 billion to Pakistan and its current sovereign portfolio in Pakistan includes 53 loans and three grants worth USD 9.13 billion.

Moody’s today cited Pakistan Information Minister’s assertions about credible evidence that India was going to strike the country militarily and said “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing physical consolidation, setting back Pakistan’s progress in achieving macroeconomic stability. Pakistan macroeconomic conditions have been improving with growth, gradually rising, inflation declining and foreign exchange reserves increasing amid continued progress in the IMF program. A persistent increase in tensions could also impair Pakistan’s access to external financing and pressure its foreign exchange reserves which remain well below what is required to meet its external debt payment needs for the next few years.”

Moody’s added that comparatively the micro economic conditions in India would be stable bolstered by moderate but still high levels of growth amid strong public investment and healthy consumption.