Global credit ratings agency Moody’s has warned that rising tensions between India and Pakistan may threaten Pakistan’s fragile economic recovery. The agency expressed concern that further escalation could disrupt access to foreign funding and reverse progress made under the International Monetary Fund (IMF) programme.
In a note issued Monday, Moody’s acknowledged recent improvements in Pakistan’s economy. Inflation has eased, growth has slowly returned, and foreign reserves have increased under IMF guidance. However, the agency stated that these gains are now at risk due to heightened geopolitical instability following the April 22 Kashmir attack, which left 26 people dead. India blamed cross-border elements, a claim Pakistan denies.
Diplomatic relations between the two neighbours have deteriorated rapidly. India suspended the Indus Waters Treaty, while Pakistan responded by ending trade ties, withdrawing from the Simla Agreement, and banning Indian aircraft from its airspace. Pakistan’s government has warned of potential military threats from India, further deepening concerns.
Moody’s noted that continued political hostility could limit Pakistan’s access to global markets and delay crucial debt repayments. Pakistan’s reserves, currently low, are insufficient to cover its upcoming obligations without steady external inflows, making the situation even more precarious.
While India may feel less economic impact—thanks to strong domestic demand and minimal trade exposure to Pakistan—Moody’s said higher defence spending could slightly slow its fiscal improvement. Despite the current climate, the agency does not expect full-scale war but predicts repeated flare-ups, as seen historically between the two rivals.