MUMBAI: International rating agency S&P Global has the rising hostilities between New Delhi and Islamabad heighten the credit metrics risk of both countries, and any escalation in clashes will put downward pressure on their sovereign credit support. S&P rates India at BBB- with a positive outlook and for Pakistan its CCC+ with stable outlook.
In a report on Thursday, the agency said in the current scenario, it does not see any immediate impact on sovereign ratings 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 said.
In a strong retaliation to the Pahalgam massacre, the Air Force had in the wee hours of Wednesday destroyed nine terror sites including that of Jaish-e-Mohammad and Lashkar-e-Taiba in Pakistan and Pakistan-occupied Kashmir (PoK).
The strikes called Operation Sindoor, took place 14 days after the Pahalgam carnage in which Pak-backed terrorists killed 26 tourists, in Pahalgam, after identifying the victim by their religions and all the victims happened to be Hindus with their families. While the terrorist fired at each of the 26 men, point blank, they spared all Muslims, women and children.
S&P said it expects India to maintain a strong economic growth that allows gradual fiscal improvements to continue, and also the Pak government to remain focused on supporting the recovery of its economy and fiscal stability.
“Both the countries have no incentive to allow current tensions to become prolonged,” it said.
Last week S&P has lowered its growth forecast for India to 6.3% from 6.5% pegged earlier for FY26, 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, it said, adding while for India, a prolonged military conflict will also lead to difficulty attracting foreign investors seeking to reconfigure their global production activities amid the uncertain global economic environment, it said.
The agency further P said the current situation raises the “specter of miscalculations and accidental clashes” that can escalate well beyond the intentions of both sides. And 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. We anticipate tensions to remain high over the next two-three weeks, with significant further military actions on both sides possible. The situation is likely to de-escalate form there leaving little persistent negative impact on sovereign credit metrics,” it added.
Source: The New Indian Express
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