India-Pakistan tensions heighten credit risks for both countries, warns S&P Global Ratings

S&P Global Ratings on Thursday said that the ongoing conflict between India and Pakistan poses increased risks to both nations' credit metrics, with potential sovereign credit support deterioration if tensions escalate. While maintaining India's rating at 'BBB-' with a positive outlook and Pakistan's at 'CCC+' with a stable outlook, S&P expects elevated tensions for the next two to three weeks, potentially involving significant military actions from both sides, though immediate credit rating impacts are not expected.S&P expressed confidence in India's continued robust economic growth, facilitating gradual fiscal improvements. The agency also anticipated Pakistan's government would prioritise economic recovery and fiscal stability. The report suggested neither nation would benefit from extended tensions.Also Read | India soars, Pak crashes! Indian stock markets rally, Pakistan’s KSE 100 plunges amid India-Pakistan tensionsAn extended military engagement would impede Pakistan's progress towards improving external and fiscal metrics necessary for macroeconomic stability, it said.Regarding India, S&P indicated that sustained military conflict would create obstacles in attracting international investors looking to reorganise their global production operations during the current uncertain economic climate."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.Following the Pahalgam incident, India's military forces conducted operations on Wednesday, successfully targeting nine terrorist facilities, including those operated by Jaish-e-Mohammad and Lashkar-e-Taiba, located in Pakistan and Pakistan-occupied Kashmir (PoK).Fifteen days following the tragic incident in Pahalgam where terrorists killed 26 civilians, predominantly tourists, India initiated its military response with 'Operation Sindoor', deploying deep strike missiles.Also Read | Big achievement! India to become 4th largest economy in 2025 overtaking Japan; will be 3rd largest by 2028Pakistani Prime Minister Shehbaz Sharif asserted his nation's entitlement to respond appropriately to what he termed an "act of war imposed by India." However, Defence Minister Khawaja Asif indicated Pakistan's willingness to reduce tensions if India takes steps towards de-escalation.S&P recently revised India's FY26 growth projection downward to 6.3 per cent from the previous 6.5 per cent, citing uncertainties surrounding US trade policies.S&P indicated that the present circumstances heighten the "specter of miscalculations and accidental clashes" that might intensify beyond what either party intends. This situation could significantly deteriorate 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 stated.Also Read | Big economic setback! Pakistan economy has more to lose than India - Moody's warning amid ongoing tensions