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The article paints a concerning picture of Pakistan's economic vulnerability in the face of ongoing tensions with India, contrasting it with India's relative resilience. Moody's Ratings has issued a warning that these tensions could significantly hamper Pakistan's economic growth and its efforts to stabilize its macroeconomic situation. The core of the issue lies in Pakistan's potential difficulty in securing external financing, a critical lifeline for a nation grappling with insufficient foreign-exchange reserves. These reserves, Moody's emphasizes, are already inadequate to meet the country's external debt obligations in the coming years. This paints a bleak scenario where Pakistan's economic progress is severely constrained by geopolitical factors. The agency’s assessment hinges on the observation that sustained tensions could hinder Pakistan's access to crucial foreign capital, thereby exacerbating its existing economic woes. The report suggests that prolonged uncertainty and instability arising from the fraught relationship with India could deter investors and lenders, making it more challenging for Pakistan to secure the necessary funding to meet its financial obligations and implement its economic reform agenda. This financial constraint could have far-reaching consequences, impacting various sectors of the economy and hindering the government's ability to address pressing social and economic challenges. The reliance on external financing underscores Pakistan's precarious economic position, where geopolitical instability can directly translate into economic vulnerability. While Moody's acknowledges some positive signs in Pakistan's economic indicators – gradual growth improvement, decreasing inflation rates, and rising foreign-exchange reserves – these improvements are overshadowed by the looming threat of escalating tensions with India. The agency also notes Pakistan's continued adherence to the IMF program requirements. However, the potential disruption to external financing could negate these positive trends, pushing Pakistan further into economic uncertainty. The IMF program, while providing crucial financial support, also comes with stringent conditions that require Pakistan to implement structural reforms and fiscal consolidation measures. Escalating tensions with India could make it even more challenging for Pakistan to meet these requirements, potentially jeopardizing the IMF program and further destabilizing the economy.
In stark contrast to Pakistan's precarious situation, Moody's assessment highlights India's robust economic outlook. The Indian economy is portrayed as being largely insulated from the adverse effects of the regional tensions, thanks to its steady growth rates, substantial public sector investments, and strong consumer spending. The report emphasizes India's minimal economic reliance on Pakistan, with trade between the two countries accounting for less than 0.5% of India's total exports in 2024. This low level of economic integration means that disruptions to trade and economic activity stemming from the tensions are unlikely to have a significant impact on India's overall economic performance. India's diverse and resilient economy, driven by domestic demand and a large and growing consumer base, provides a buffer against external shocks. The government's focus on infrastructure development and public sector investments further contributes to the economy's strength and stability. The report does acknowledge that higher military expenditure could potentially impact India's fiscal robustness and decelerate its fiscal consolidation process. However, this potential impact is considered to be manageable and is not expected to significantly derail India's economic trajectory. The agency's confidence in India's economic resilience stems from its diversified economy, strong domestic demand, and relatively limited exposure to the economic consequences of the tensions with Pakistan. This assessment reinforces India's position as a major economic power in the region, capable of weathering geopolitical storms without significant disruption to its economic performance. The contrast between Pakistan's vulnerability and India's resilience underscores the significant disparities in their economic structures and their ability to cope with external shocks. While Pakistan's economy is heavily reliant on external financing and vulnerable to geopolitical instability, India's diversified economy and strong domestic demand provide a solid foundation for sustained economic growth.
The article further details the various economic countermeasures implemented by the Indian government in response to the Pahalgam attack. These measures include a comprehensive ban on all Pakistani imports, including those routed through third countries, and the suspension of postal and parcel services from Pakistan. Additionally, India has imposed restrictions preventing Pakistani-registered vessels from entering Indian ports, while simultaneously prohibiting Indian vessels from accessing Pakistani harbors. These measures signal a hardened stance by the Indian government and further exacerbate the deteriorating diplomatic and economic ties between the two countries. The suspension of the Indus Waters Treaty of 1960, a long-standing agreement governing the sharing of water resources between the two countries, could have significant implications for Pakistan's water access. This move, if implemented, could further strain relations and potentially lead to water scarcity in Pakistan, impacting agriculture and other water-dependent sectors. In response to India's actions, Pakistan has reportedly suspended the 1972 Simla peace treaty with India, stopped bilateral trade activities, and restricted Indian airlines from using its airspace. These retaliatory measures further escalate the conflict and create a cycle of economic and diplomatic hostility. The exchange of economic sanctions and restrictions highlights the deep-seated tensions and the willingness of both countries to use economic leverage to exert pressure on each other. The long-term consequences of these actions could be significant, potentially leading to further economic hardship for both countries and undermining regional stability. The article concludes by highlighting the entrenched nature of the geopolitical risks associated with the relationship between Pakistan and India. Moody's geopolitical risk assessment accounts for persistent tensions, which have at times led to limited military responses. The agency assumes that flare-ups will occur periodically, but that they will not lead to an outright, broad-based military conflict. This assumption underscores the delicate balance of power in the region and the potential for escalation. The ongoing tensions between Pakistan and India pose a significant challenge to regional stability and economic development. The economic countermeasures and retaliatory actions described in the article underscore the deep-seated animosity and the potential for further escalation. The contrasting economic vulnerabilities of the two countries highlight the importance of addressing the underlying causes of the conflict and finding peaceful solutions to the outstanding issues. The article serves as a stark reminder of the interconnectedness of geopolitics and economics, and the potential for conflict to undermine economic progress and regional stability.
Source: Big economic setback! Pakistan economy has more to lose than India