S&P Global Ratings on Thursday said the hostilities between India and Pakistan heighten risks to the credit metrics of both countries, and any escalation in clashes would put downward pressure on sovereign credit support.
Photograph: Sharafat Ali/Reuters
S&P, which rates India and Pakistan at ‘BBB-‘ with a positive outlook and a ‘CCC+’ (outlook stable), said that in the current scenario, it does not see any immediate impact on sovereign credit rating and expects the tensions to remain high over the next two to three weeks, with significant further military actions on both sides possible.
“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,” S&P Global Ratings said in a statement.
In a strong retaliation to the Pahalgam massacre, India’s armed forces early on Wednesday destroyed nine terror sites including that of Jaish-e-Mohammad and Lashkar-e-Taiba in Pakistan and Pakistan-occupied Kashmir (PoK).
15 days after the Pahalgam carnage in which terrorists killed 26 civilians, mostly tourists, in Pahalgam, India launched its military response codenamed ‘Operation Sindoor’ using deep strike missiles.
Pakistan Prime Minister Shehbaz Sharif has said his country has every right to give a “befitting reply to this act of war imposed by India.”
Pakistani Defence Minister Khawaja Asif, however, said Islamabad is ready to “wrap up” tensions with New Delhi, if it de-escalates the situation.
S&P said it expects India to maintain strong economic growth that allows gradual fiscal improvements to continue, and also the Pakistan government to remain focused on supporting the recovery of its economy and fiscal stability.
Both countries have no incentive to allow current tensions to become prolonged, it said.
Last week S&P cut FY26 India’s growth forecast to 6.3 per cent, from 6.5 per cent pegged earlier, citing uncertainty over US trade policy.
A protracted military conflict will derail the improvements to Pakistan’s external and fiscal metrics that would support a return to macro stability.
For India, a prolonged military conflict will also lead to difficulty attracting foreign investors seeking to reconfigure their international production activities amid the uncertain global economic environment, S&P said.
S&P said the current situation raises the “specter of miscalculations and accidental clashes” that could escalate well beyond the intentions of both sides.
Such a scenario would materially worsen credit risks.
“The downward pressures on sovereign credit support will exacerbate if there is no material de-escalation in the next few weeks,” S&P said.
“We anticipate 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,” it added.
Earlier this week, Moody’s Ratings had projected India’s growth at 6.3 per cent for the current fiscal and said that geopolitical stresses, like the tension between India and Pakistan, have a potential downside risk to its baseline growth forecasts.
“Costs to investors and businesses are likely to rise as they factor for new geopolitical configurations when deciding where to invest, expand and/or source goods,” Moody’s had said.
