Tensions Between India and Pakistan Could Strain Pakistan's Economic Stability, Warns Moody's
Escalating India-Pakistan tensions could strategically impair Pakistan's economic growth and halt developmental progress, according to Moody's analysis.
Here's the lowdown on the latest development between our two neighboring nations, India and Pakistan. According to Moody's Investors Service, the ongoing escalation of tensions could put a squeeze on Pakistan's access to external financing and put pressure on its foreign-exchange reserves.
Pakistan's foreign exchange reserves are already running low, and Moody's has flagged the potentially dire consequences of worsening tensions, such as reduced investor confidence, capital flight, and currency depreciation, which could further strain its already depleted reserves.
The ongoing IMF program and efforts to secure additional debt relief might face setbacks, as diplomatic instability could discourage lenders and investors, making it difficult for Pakistan to secure much-needed funds for debt repayments and imports. Recent progress in fiscal consolidation and reserve accumulation under the IMF program could unravel if tensions persist.
As tensions increase, India has taken stern action, downgrading diplomatic ties with Pakistan following a deadly terrorist attack in Jammu and Kashmir. Consequences such as the suspension of the Indus Waters Treaty could, over time, further diminish Pakistan's water supply.
In a worst-case scenario, protracted escalation of tensions between the two countries could weigh heavily on Pakistan's growth and slow its progress towards achieving macroeconomic stability. India, however, seems to be in a more stable macroeconomic condition, bolstered by moderate growth and strong public and private investment.
Moody's asserts that while brief periods of military response are possible, an all-out, broad-based military conflict between the two nations is unlikely.
Stay tuned for the latest updates on this developing situation! If you're interested in Indo-Pakistan relations, keep an eye on our website or download our app for timely updates.
[1] Moody's Investors Service, "Pakistan's Ongoing Tensions with India Could Strain Its Access to Financing," [Source][2] Reuters, "Pakistan's Tensions with India Pose Risks to Its Economic Recovery: Moody's," [Source][3] The Diplomat, "Why Pakistan's Foreign Exchange Reserves Are So Low," [Source][4] The Express Tribune, "Moody's Warns of Potential Capital Flight in Pakistan: Here's Why," [Source][5] The Economic Times, "Tensions with India Could Threaten Pakistan's Economic Recovery: Moody's," [Source]
- Moody's has warned that ongoing tensions between India and Pakistan could strain Pakistan's access to external financing in the finance market, potentially leading to pressure on foreign-exchange reserves.
- Amid the escalating tensions, Pakistan's foreign exchange reserves are running low, which Moody's fears could exacerbate due to reduced investor confidence, capital flight, and currency depreciation.
- The ongoing International Monetary Fund (IMF) program and attempts to secure additional debt relief may face setbacks due to the diplomatic instability, making it challenging for Pakistan to secure funds for debt repayments and imports.
- If tensions persist, recent progress in fiscal consolidation and reserve accumulation under the IMF program could unravel, placing further pressure on Pakistan's economy.
- India, in contrast, appears to be in a more stable macroeconomic condition, supported by moderate growth and strong public and private investment in the market economy.
- Moody's predicts that while brief periods of military response are possible, an all-out, broad-based military conflict between the two nations is unlikely in the forex market.
- As general-news platforms continue to provide updates on the developing situation between India and Pakistan, it is important to stay informed about Indo-Pakistan relations and its impact on the region's economy, sports, and other sectors.
