News Desk
NEW DELHI — The escalating tensions between India and Pakistan, sparked by a deadly terrorist attack in Indian Kashmir’s Pahalgam on April 22, are poised to choke Pakistan’s fragile economic recovery, according to a report by Moody’s, the global rating agency, released on Monday. The attack, which claimed 26 lives, mostly tourists, in one of the deadliest assaults in the region since 2000, was attributed by India to terrorist elements based in Pakistan. India’s subsequent diplomatic measures, including threats to suspend the 1960 Indus Waters Treaty, have intensified pressure on Pakistan, exposing its economic vulnerabilities and diplomatic isolation.
The Pahalgam attack, widely condemned as an act of cross-border terrorism, prompted India to grant its military “operational freedom” and signal a robust response to any further provocations. Pakistan, rejecting India’s accusations and demanding a neutral investigation, has bolstered its military presence along the border, bracing for potential Indian action. While diplomatic channels remain open to avert a broader conflict, the standoff has deepened mistrust, with Pakistan’s Information Minister Attaullah Tarar warning of an imminent Indian military move, that did not happen. Indian officials report that Pakistan has been conducting near-daily cross-border firing at night along the Line of Control in Indian Kashmir.
Moody’s warned that sustained escalation would severely undermine Pakistan’s economic growth, derailing its progress toward macroeconomic stability. “A persistent increase in (diplomatic isolation) could impair Pakistan’s access to external financing and pressure its foreign exchange reserves, which remain well below what is required to meet its external debt payment needs,” the agency noted. Pakistan’s economy, though showing signs of improvement with rising growth, easing inflation, and increasing reserves under an International Monetary Fund program, remains precarious. The potential suspension of the Indus Waters Treaty, a critical source for Pakistan’s agriculture and water supply, could deliver a devastating blow, exacerbating its economic woes.
In contrast, India’s economy is expected to weather the storm with minimal disruption. Moody’s highlighted India’s robust growth, driven by strong public investment and healthy private consumption, noting that Pakistan accounts for less than 0.5 percent of India’s total exports in 2024.
India’s diplomatic offensive, including suspension of the Indus Waters Treaty, reflects a calculated strategy to penalize Pakistan for its alleged support of terrorism in Indian Kashmir. The treaty, a rare point of cooperation between the two nations, has long been a cornerstone of their uneasy coexistence. Its potential suspension would signal a new low in bilateral relations, further isolating Pakistan on the global stage.
Moody’s assessment underscores the asymmetry in the India-Pakistan dynamic. While India’s economic and military might allows it to absorb the costs of heightened tensions, Pakistan’s dependence on external financing and limited reserves leaves it acutely vulnerable. The agency predicted that periodic flare-ups, a hallmark of the two nations’ post-independence history, would continue but stop short of all-out war. Yet, for Pakistan, the economic fallout from India’s diplomatic measures could prove as damaging as any military confrontation, locking it in a cycle of instability and dependence.
As India presses its advantage, the international community watches warily, aware that the repercussions of this standoff extend beyond the subcontinent. For now, Pakistan’s economic fate hangs in the balance, caught in the crosshairs of India’s response to the Pahalgam terror attack and the broader geopolitical chessboard.
