Pakistan Likely to Suffer Economic Setbacks. Moody’s Report..

Economic Turmoil in Pakistan Amid Rising Tensions

Pakistan is currently facing a state of turmoil. If the ongoing tensions persist or escalate into a full-scale conflict,

it will have a significant impact on Pakistan’s economy—much more so than on India’s.

This assessment was made in a report released on Monday by the renowned credit rating agency, Moody’s.

Pakistan Likely to Suffer Economic Setbacks

The report highlights that while Pakistan’s economy had recently started showing signs of recovery after a prolonged period of instability, the current tense situation could derail this progress.

It may affect the country’s GDP growth and disrupt the government’s efforts to restore fiscal balance.

Tensions Between India and Pakistan

Rising tensions could escalate into conflict, severely affecting Pakistan’s already fragile economy.

Moody’s Report Warning

Credit rating agency Moody’s stated that Pakistan would face greater economic harm than India if the situation worsens.

Pakistan’s Economic Recovery at Risk

Pakistan had just started to show signs of economic recovery, which is now under threat due to the current instability.

Impact on Pakistan’s Growth Rate

Tensions could hinder Pakistan’s GDP growth and derail the government’s fiscal reforms.

India’s Stronger Economic Foundation

India has a more stable and resilient economic structure compared to Pakistan.

Limited India-Pakistan Trade Ties

Moody’s noted that India’s economic activities are unlikely to be significantly impacted, as trade with Pakistan is minimal.

Potential Rise in India’s Defense Spending

Although India’s economy won’t be heavily affected, increased defense expenditure could impact fiscal balance.

Pakistan’s Loan Dependency

Pakistan is seeking a new loan from the IMF, but prolonged tensions may reduce its ability to attract external funding.

Downgraded Growth Forecasts

IMF and World Bank reduced Pakistan’s 2025 growth forecast from 3.2% to 3%, while India’s remains at 6.2%.

Foreign Exchange Reserves compairsan

India has strong reserves of $688 billion, whereas Pakistan holds only $15 billion, highlighting the financial gap.

Moody’s also noted that tensions between India and Pakistan are likely to persist. Historically, the two countries have engaged in military actions due to these ongoing disputes.

India’s Economy Stronger Compared to Pakistan’s

According to Moody’s, India’s economy has fundamentally stronger pillars in comparison to Pakistan.

India continues to show relative stability, and despite a slowdown in growth, the level remains high due to increased government spending and strong private consumption.

The report states that local tensions are unlikely to significantly impact India’s overall economic activities,

mainly because its economic ties with Pakistan are very limited. However, a rise in defense spending could impact India’s fiscal balance and potentially affect the roadmap laid out by the Indian government for fiscal management.

Challenges for Pakistan in Raising External Debt

Another key concern raised in the report is Pakistan’s struggle to secure external funding.

Although the country had recently seen some positive developments—such as an increase in foreign exchange reserves,

controlled inflation, and optimistic growth projections—the current tensions with India could reverse these gains.

The Pakistani government is currently seeking a new loan from the International Monetary Fund (IMF).

But if the situation with India drags on, it could negatively affect Pakistan’s foreign reserves and make it more difficult to secure external loans.

It’s worth noting that both the IMF and World Bank have recently downgraded Pakistan’s projected economic growth rate for 2025 from 3.2% to 3%.

In contrast, despite a slight slowdown, India’s growth rate is still estimated at 6.2%.

India also holds a robust foreign exchange reserve of $688 billion, compared to Pakistan’s mere $15 billion.

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