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S&P Global warns of rising credit risks for India and Pakistan due to escalating tensions, but no immediate impact expected.
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With rising tensions, global rating agency S&P Global has cautioned about rising credit risks for both India and Pakistan. However, it made it clear that there is no immediate impact.
As on date, India’s rating is ‘BBB-‘ with a positive outlook. The positive outlook reflects that continued policy stability, deepening economic reforms, and high infrastructure investment will sustain long-term growth prospects. That, along with cautious fiscal and monetary policy that diminishes the government’s elevated debt and interest burden while bolstering economic resilience, could lead to a higher rating over the next 24 months. The agency is expected to come out with latest rating action soon.
“The outbreak of hostilities between India and Pakistan has increased regional credit risks, especially for the two sovereigns involved. Our base case is for the intense military actions to be temporary, which will give way to a longer period of contained and sporadic confrontations,” the agency said. However, in the current scenario, it clarified, it sees no immediate impact on the sovereign credit ratings of India (BBB-/Positive/B) and Pakistan (CCC+/Stable/C).
Nevertheless, “the situation raises the spectre of miscalculations and accidental clashes that could escalate well beyond the intentions of both sides. Such a scenario would materially worsen credit risks,” the agency said.
The agency anticipates tensions to remain high over the next two to three weeks, with significant further military actions on both sides possible. However, the situation is likely to de-escalate following that, leaving little persistent negative impact on sovereign credit metrics. “We expect India to maintain strong economic growth that allows gradual fiscal improvements to continue,” it said while adding that it expects the Pakistan government to remain focused on supporting the recovery of its economy and fiscal stability.
“In our view, both countries have no incentive to allow current tensions to become prolonged,” the agency said. For India, a prolonged military conflict will lead to difficulty attracting foreign investors seeking to reconfigure their international production activities amid the uncertain global economic environment. A protracted military conflict will derail the improvements to Pakistan’s external and fiscal metrics that would support a return to macro stability.
The latest situation heightens risks to sovereign credit metrics that will increase the longer current tensions persist. “Accidental contacts and other miscalculations present serious risks in a state of active combat that could intensify the conflict to levels beyond the intentions of both parties. Consequently, the downward pressures on sovereign credit support will exacerbate if there is no material de-escalation in the next few weeks,” the agency said.
Published on May 8, 2025
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