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Informist, Monday, May 5, 2025

 

--Moody's: India macro conditions seen stable even if Pakistan tensions rise

--Moody's: Account for persistent India, Pakistan tensions in our assessment

--Moody's: Assume periodic India-Pakistan flare-ups but not outright conflict

 

NEW DELHI - Moody's Ratings does not expect "major disruptions" to economic activity in India even in a scenario of "sustained escalation in localised tensions" with Pakistan given the minimal economic relations between the two nations, the global ratings agency said Monday. However, Moody's warned that higher defence spending "would potentially weigh on India's fiscal strength and slow its fiscal consolidation".

 

"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… 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," the ratings agency's analysts said in a note.

 

India, whose GDP the government estimates likely grew 6.5% in 2024-25 (Apr-Mar), is targeting a fiscal deficit of 4.4% of GDP in the current financial year before moving to annual debt-to-GDP targets from FY27. The central government is aiming to cut its debt-to-GDP ratio to 50% by FY31 from 57.1% in FY25.

 

Moody's has a Baa3 rating on India with a stable outlook, while Pakistan is rated at Caa2 with a positive outlook.

 

The ratings agency's assessment framework accounts for persistent tensions between India and Pakistan, with flare-ups assumed to occur from time to time without leading to an "outright, broad-based military conflict", it said.

 

While Pakistan has denied any involvement in the deadly attacks on tourists on Apr. 22 in Pahalgam, relations between the two countries have rapidly deteriorated, with India suspending the Indus Waters Treaty of 1960 and Pakistan responding by holding the Simla Agreement of 1972 in abeyance and closing its airspace to Indian airline companies.  End

 

Reported by Siddharth Upasani

Edited by Vandana Hingorani

 

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