Global ratings agency Moody’s said on Monday that India’s macroeconomic conditions are expected to remain stable even as tensions with Pakistan rise in the wake of the Pahalgam terror attack, which left 26 civilians dead.

In sharp contrast, Pakistan’s economic stability remains highly vulnerable. According to Moody’s, sustained escalation in tensions with India could undermine Pakistan’s fiscal consolidation goals and further strain its already fragile economy.

The report highlights that Pakistan’s foreign-exchange reserves, which stand at just over $15 billion, remain insufficient to cover its upcoming external debt obligations. Any geopolitical flare-up could further impair Pakistan’s access to external financing.

India, however, is in a far stronger position. With foreign reserves exceeding $688 billion, India’s economy is supported by robust public investment and resilient private consumption. Although a prolonged rise in defence spending could slow India’s fiscal consolidation, Moody’s does not expect major economic disruptions due to limited trade exposure to Pakistan—less than 0.5% of total exports in 2024.

“India’s macroeconomic conditions would remain stable even under scenarios of sustained localised tensions, whereas Pakistan would face intensified economic pressures,” the Moody’s report said.

Pakistan is still recovering from the brink of sovereign default in 2023, which was averted with a $3 billion IMF bailout. The country remains reliant on international assistance, including a new $1.3 billion climate resilience loan it is currently pursuing.

Moody’s also noted that periodic flare-ups between India and Pakistan are expected, but not a full-scale military conflict. “Our assessment accounts for persistent tensions between the two countries that have historically led to limited military responses but not escalated into broad-based conflict,” the report concluded.