S&P sees no immediate rating impact but flags risk for India, Pakistan

May 08, 2025 (MLN): Pakistan and India face rising credit risks as tensions between the two nations escalate, according to global rating agency S&P Global.

The agency cautioned that while there is no immediate impact on the sovereign credit ratings of either country India (BBB-/Positive/B) and Pakistan (CCC+/Stable/C) the situation presents significant downside risks if hostilities continue.

"The outbreak of hostilities between India and Pakistan has increased regional credit risks, especially for the two sovereigns involved," S&P Global stated.

The agency emphasized that the situation "raises the specter of miscalculations and accidental clashes that could escalate well beyond the intentions of both sides," which would materially worsen credit risks.

S&P’s base case scenario anticipates the intense military actions to be temporary, followed by a period of contained and sporadic confrontations.

Tensions are expected to remain high over the next two to three weeks, with further significant military actions on both sides possible.

However, the agency sees the situation likely de-escalating after that, resulting in minimal long-term negative impact on sovereign credit metrics.

S&P expects India to continue maintaining strong economic growth, allowing for gradual fiscal improvements.

Meanwhile, it anticipates the Pakistan government will remain focused on supporting economic recovery and fiscal stability.

"In our view, both countries have no incentive to allow current tensions to become prolonged," the agency noted.

It warned that a protracted military conflict would derail improvements to Pakistan’s external and fiscal metrics needed for macro stability.

For India, sustained hostilities could hinder its efforts to attract foreign investors aiming to reconfigure international production amid global uncertainty.

S&P concluded that the latest developments heighten risks to sovereign credit metrics, especially if tensions persist.

"Accidental contacts and other miscalculations present serious risks in a state of active combat that could intensify the conflict to levels beyond the intentions of both parties," the agency stated.

"Consequently, the downward pressures on sovereign credit support will exacerbate if there is no material de-escalation in the next few weeks."

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