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Hostilities between India, Pakistan heighten risks to credit metrics of both countries: S&P
May-08-2025

S&P Global Ratings has said that 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. 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.

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. Recently, 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, S&P said 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. It 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. It anticipates tensions to remain high over the next two to three weeks, with significant further military actions on both sides possible. However, it said the situation is likely to de-escalate following that, leaving little persistent negative impact on sovereign credit metrics.


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