S&P Global Ratings Warns of Risks to India and Pakistan’s Credit Metrics Amidst Tensions

GG News Bureau
New Delhi, 8th May: S&P Global Ratings stated on Thursday that the ongoing tensions between India and Pakistan could increase risks for both countries’ credit metrics. According to a PTI report, the rating agency warned that any escalation in the conflict could dampen sovereign credit support.

S&P, which currently rates India at ‘BBB-‘ with a positive outlook and Pakistan at ‘CCC+’ (stable outlook), noted that it does not see any immediate impact on the sovereign credit ratings under the current circumstances. However, it anticipates heightened tensions over the next two to three weeks, with the possibility of significant military action from both sides.

“Escalation of hostilities between India and Pakistan has raised regional credit risks,” S&P Global Ratings said. “Our base case is that intense military action will be temporary, giving way to limited and sporadic skirmishes over a longer period.”

This assessment comes after the Indian armed forces reportedly destroyed nine terrorist camps in Pakistan and Pakistan-occupied Kashmir (PoK) on Wednesday in response to the Pahalgam massacre. The targeted groups allegedly included Jaish-e-Mohammed and Lashkar-e-Taiba.

S&P expressed its expectation that India will maintain strong economic growth, facilitating gradual fiscal improvements, while the Pakistani government focuses on supporting its economic recovery and fiscal stability. The agency believes that neither country has an incentive to prolong the current tensions.

Last week, S&P lowered India’s growth forecast for fiscal year 2026 to 6.3 percent from 6.5 percent, citing uncertainty over US trade policy.

Regarding the potential impact of a prolonged conflict, S&P stated that it could derail Pakistan’s progress in improving its external and fiscal metrics, which are crucial for supporting the return of macroeconomic stability. For India, a protracted military conflict could hinder its ability to attract foreign investors looking to reorganize their international production activities amidst an uncertain global economic environment.

Despite the anticipation of further significant military action from both sides in the near term, S&P believes the situation is likely to improve thereafter, preventing a sustained negative impact on sovereign credit metrics.

Earlier this week, Moody’s Ratings projected India’s growth to be 6.3 percent for the current fiscal year and cautioned that geopolitical tensions, such as those between India and Pakistan, pose a risk to its baseline growth forecasts.