Arshad Mahmood Awan
Moody’s recent assessment highlighting the potential economic fallout of escalating tensions between India and Pakistan is a sobering reminder of how geopolitics can destabilize fragile economies. The global rating agency, based in New York, has expressed serious concerns that rising conflict risks could derail Pakistan’s economic recovery—an outcome that Islamabad can ill afford.
For Pakistan, the stakes are high. The country has been clawing its way back toward macroeconomic stability under a stringent International Monetary Fund (IMF) programme. Recent improvements include better socio-economic indicators, a modest build-up of foreign exchange reserves, and some easing of inflationary pressures. But these hard-won gains are hanging by a thread as India’s aggressive posture sends shockwaves across the region.
Moody’s warns that sustained tensions could severely impact Pakistan’s growth trajectory and undo fiscal consolidation efforts. In simpler terms, if the saber-rattling continues, Pakistan risks falling back into a cycle of financial instability. The agency is particularly concerned about Pakistan’s access to external financing. With trade links severed and remittances at risk of declining, the country’s ability to service its external debt could be compromised. This would be a nightmare scenario for an economy that is already heavily reliant on external support and vulnerable to balance-of-payments crises.
The situation is further complicated by India’s recent move to choke the flow of water into Pakistan. As an agrarian economy where agriculture forms the backbone of livelihoods and GDP, water is Pakistan’s lifeline. Disrupting water supplies is not merely a hostile act; it is a form of economic warfare. When coupled with the suspension of the already minimal trade between the two countries, it becomes clear that a strategy of economic strangulation is at play.
Moody’s rightly points out that these tactics could weaken Pakistan’s export capacity and reduce remittance inflows. This is a serious concern because both exports and remittances are key pillars of Pakistan’s foreign exchange earnings. If either starts to falter, Pakistan’s economic house of cards could collapse, making debt repayments even more precarious.
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Interestingly, Moody’s believes that India, despite escalating tensions, faces minimal immediate economic risks. The rating agency notes that India is currently experiencing robust economic growth, driven by strong public investment and healthy domestic consumption. In essence, while Pakistan stands to lose a great deal from continued conflict, India appears insulated in the short term. But the long-term risks should not be underestimated.
India’s aggressive moves seem driven by a hegemonic desire to weaken Pakistan strategically and economically. This goes beyond simple border disputes or security concerns. It is about asserting dominance and forcing Pakistan into a subordinate position, not just militarily but also economically. Such a policy, however, is dangerously short-sighted.
Labeling India’s actions as a form of “economic genocide” is not an exaggeration. By weaponizing trade, water, and diplomatic isolation, India is undermining the very principles of peaceful coexistence and neighborhood diplomacy. This is despite Pakistan’s repeated offers to cooperate on counter-terrorism measures and to participate in impartial investigations, such as those proposed after the Pahalgam killings. Yet, these gestures have been met with hostility rather than dialogue.
It’s essential to recognize that conflict is never a one-way street. While India may currently enjoy an upper hand economically, prolonged hostility will come at a cost. Moody’s projects that increased defense spending could begin to strain India’s fiscal position. Wars, even when fought indirectly or through economic means, drain national resources and divert attention from development goals.
Moreover, Pakistan has made it clear that any existential threat will provoke a full-spectrum response. This is a blunt reminder that the conflict has the potential to escalate beyond conventional warfare. In a nuclear-armed neighborhood, that is a terrifying prospect. The doctrine of Mutually Assured Destruction (MAD) is not just a theoretical concept; it is a grim reality that both sides must heed.
India, therefore, must weigh the long-term consequences of its current trajectory. While it may achieve tactical gains by economically squeezing Pakistan, the broader risks to regional stability and its own economic health are significant. History has shown time and again that conflicts between neighbors can spiral out of control, with devastating consequences for both sides.
From Pakistan’s perspective, the situation is precarious but not hopeless. The country must focus on shoring up its economic defenses. This means diversifying trade partners, building stronger ties with friendly nations, and reducing reliance on volatile neighbors. It also requires strengthening internal governance and improving resilience in sectors like agriculture and manufacturing to mitigate the impact of external shocks.
At the same time, global actors and multilateral institutions have a role to play. The international community should not turn a blind eye to policies that threaten regional stability. Diplomatic pressure must be applied to de-escalate tensions and encourage dialogue. Sustainable peace in South Asia is not just a regional imperative; it is a global responsibility.
In conclusion, Moody’s warning is not merely an economic analysis—it is a wake-up call. Pakistan’s fragile economic gains are at risk, and the path forward requires both strategic patience and proactive diplomacy. For India, the temptation to assert dominance through economic and geopolitical maneuvers may seem appealing in the short term, but the potential blowback is severe. Both nations stand at a crossroads. The choice is stark: continue down a path of mutual destruction or step back and invest in a future of shared prosperity.
