S&P warns ongoing hostilities heighten regional credit risks

KARACHI: S&P Global Ratings warned on Thursday that escalating hostilities between Pakistan and India have heightened regional credit risks, though it expects the confrontation to remain contained.

In a statement, the ratings agency said it anticipates any military action between the two countries to be short-lived, but cautioned that miscalculations could severely undermine creditworthiness for both sovereigns.

Hostilities intensified this week after Pakistan’s military reported downing five Indian Air Force jets -- three Rafale, one MiG-21, and one SU-30 -- in retaliation for Indian missile strikes.India reportedly followed up with drone strikes. Pakistan’s military said it had shot down 12 Indian drones at multiple locations within its territory.

Despite the heightened escalation, S&P noted that it does not foresee an immediate impact on either country’s credit ratings. The agency expects tensions to remain high over the coming weeks, with the potential for further military actions, but believes eventual de-escalation will limit long-term damage to sovereign creditworthiness.

S&P added that neither country stands to benefit from a prolonged conflict, warning that continued hostilities would derail Pakistan’s macroeconomic stabilisation efforts and deter foreign investment in India amid broader global economic uncertainty.