Pakistan tests missile amid India standoff Moody s warns of economic cost

ISLAMABAD/BELA NOOR SHAH, Pakistan – Pakistan carried out a second missile test in three days on May 5 after saying it was preparing for an incursion by India, as Moody’s warned that the stand-off over violence in Kashmir could set back Islamabad’s economic reforms.

Relations between the nuclear-armed neighbours have nosedived since gunmen killed 26 people on April 22 in an attack targeting Hindu tourists in Indian Kashmir, the worst such assault on civilians in India in nearly two decades.

India has accused Pakistan of involvement. Islamabad has denied the allegations but said it has intelligence that New Delhi intends to launch military action against it soon.

The diplomatic flare-up and exchanges of small arms fire across the border in Kashmir has alarmed world and regional powers.

Moody’s said the stand-off could hurt Pakistan’s US$350 billion (S$452.7 billion) economy, which is on a path to recovery after securing a US$7 billion bailout programme from the International Monetary Fund (IMF) in 2024 and staving off a default threat.

“Sustained escalation in tensions with India would likely weigh on Pakistan’s growth and hamper the government’s ongoing fiscal consolidation, setting back Pakistan’s progress in achieving macroeconomic stability,” Moody’s said.

“A persistent increase in tensions could also impair Pakistan’s access to external financing and pressure its foreign-exchange reserves,” it added.

The report comes two days after Reuters reported that India has asked the IMF to review its loans to Pakistan.

India’s economy is not expected to see major disruptions since it has “minimal economic relations” with Pakistan – although higher defence spending could weigh on New Delhi’s fiscal strength and slow fiscal consolidation, Moody’s added.

Missile test

The Himalayan region of Kashmir lies at the heart of decades of hostility between Hindu-majority India and Islamist Pakistan, both of which claim it in full but