NEW YORK: Global rating agency Moody’s on Monday cautioned that escalating tensions between Pakistan and India following a shooting incident in the Pahalgam area of Indian Illegally Occupied Jammu and Kashmir (IIOJK) could impact Pakistan’s economic growth.
On 22 April, gunmen attacked tourists in the Pahalgam killing 26 people and injuring 17. India swiftly blamed Pakistan for the attack without presenting any credible evidence.
Pakistan condemned the attack and strongly rejected the Indian government’s baseless accusations.
A day after the Pahalgam incident on 23 April, India’s Cabinet Committee on Security approved measures including the closure of the Wagah-Attari border crossing and the suspension of the Indus Waters Treaty.
Pakistan’s Prime Minister Shehbaz Sharif has called for an independent investigation into the incident.
Islamabad also warned that any attempt by India to stop or divert the Indus River waters would be considered an “act of war”.
In a note, Moody’s stated: “Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability.”
Commenting on Pakistan’s economic trajectory, it said that its macroeconomic indicators had been improving, with growth gradually rising, inflationary pressure easing and foreign exchange reserves increasing amid continued progress in the International Monetary Fund (IMF) programme.
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However, the agency cautioned that “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”.
“India and Pakistan’s diplomatic relations have deteriorated,” the agency said.
The rating agency warned that India’s suspension of the 1960 Indus Waters Treaty could “severely reduce Pakistan’s water supply”.
On India, it said that higher defence spending could impact India’s “fiscal strength and slow its fiscal consolidation”.
“Our geopolitical risk assessment for Pakistan and India accounts for persistent tensions, which have, at times, led to limited military responses,” it said.
