Pakistan's credit rating will improve, says S&P

The greatest benefit India would reap from a deep rapprochement with Pakistan would accrue from its improved standing on the world stage and with the US, which could lead to better trade and defence ties with Washington, S&P said in its comment on the improved relations between the two neighbours.

The recent improvement in ties between India and Pakistan promises distinct benefits for both countries, if the thaw translates into lasting peace.

The likely rewards for Islamabad could largely be defined in concrete economic terms, the combined effect of which would boost Pakistan's positive credit rating trajectory, said S&P's Agost Benard, associate director in the Sovereign and International Public Finance Ratings Group.

S&P's commentary, titled "Thawing India-Pakistan Ties: Peace Imperatives Greater Than Ever, As Are The Potential Rewards," came amid the visit of President Pervez Musharraf to India and a joint statement pledging to carry forward the "irreversible" peace process.

It said even in the absence of a full-fledged peace pact, a pragmatic bent on both sides suggested that India and Pakistan would increasingly lean toward co-operation and trade, while negotiators labour over a resolution of the Kashmir dispute.

It said the key benefit for Pakistan would be the reduction in its military spending, which would free up funds for social needs that would improve the standard of living and economic productivity. The reduced expenditure could result in better fiscal balances, in turn accelerating the cut in Pakistan's substantial debt.

It said normalisation of ties would also unlock the potential for cross-border trade and investment.

Although there would be tangible gains from increased trade with Pakistan and easier access to Iranian gas via a proposed pipeline through Pakistan, these would be less significant to India because of the comparative size of its economy over Pakistan.

"Recent changes in the economic dynamics of both countries, together with a radically altered geopolictical landscape over the past 15 years, make for stro-nger peace imperatives than before, with potential gains from success larger than ever," Benard said.