'Terror' funding: India opposes IMF aid to Pakistan

The International Monetary Fund (IMF) on Friday approved loans to Pakistan, after India abstained from voting at a meeting of the multilateral body’s board, raising concerns over the efficacy of such bailouts and flagging the “possibility of misuse of funds for state sponsored cross-border terrorism”.

ET reported last month that India would oppose the loan.

The IMF board, which met in Washington DC, reviewed and approved an extended fund facility lending programme of $1 billion to Pakistan. The IMF also cleared a $1.4 billion credit line for the country for climate resilience efforts, the multilateral body said in a statement.

The meeting comes at a time when both countries are engaged in conflict following the terrorist attack in Pahalgam last month that killed 26. New Delhi has blamed Islamabad for persistently fomenting terrorism in Kashmir.



Also Read: On IMF’s lifeline, Pakistan struggles as India wields its economic power to block handouts

No Provision to Vote 'Against' Proposals at IMF

There is no provision to vote against a proposal at the IMF. A country can vote in favour or abstain.

In a statement on the IMF meeting, the Indian government said: “India pointed out that rewarding continued sponsorship of cross-border terrorism sends a dangerous message to the global community, exposes funding agencies and donors to reputational risks, and makes a mockery of global values.”

There is an urgent need to ensure that moral values are given appropriate consideration in the procedures followed by global financial institutions, especially the IMF, it said.

Both the programmes reviewed on Friday were agreed on at the IMF staff level before the latest hostilities broke out.

Pakistan has been a long-time borrower from the IMF but its record of implementing and adhering to the lender’s programme conditions remains very poor, the Indian government added.

The IMF, the government said, noted India’s statement.

Also Read: Pakistan gets IMF loan of $1 billion as India abstains from voting

India highlighted that Pakistan military’s deeply entrenched interference in economic affairs poses significant risks of policy slippages and reversal of reforms.

In the 35 years since 1989, Pakistan has had disbursements from the IMF in 28 of them. In the last five years, there have been four IMF programmes to support it. If the previous programmes had succeeded in putting in place a sound macroeconomic policy environment, India stressed, Pakistan would not have approached the Fund for yet another bailout programme.

“India pointed out that such a track record calls into question either the effectiveness of the IMF programme designs in case of Pakistan or their monitoring or their implementation by Pakistan,” the Indian government said in the statement.

Flagging the damaging role of the Pakistani army, India said: “Even when a civilian government is in power now, the army continues to play an outsized role in domestic politics and extends its tentacles deep into the economy.” It cited a 2021 UN report that described military-linked businesses as the “largest conglomerate in Pakistan.”

“The situation has not changed for the better; rather the Pakistan army now plays a leading role in the Special Investment Facilitation Council of Pakistan,” it said.

Thanks to repeated bailouts, Pakistan’s debt burden is very high, which paradoxically makes it a too-big-to-fail debtor for the IMF, it said.

While the concern that fungible inflows from international financial institutions, like the IMF, could be misused for military and state-sponsored, cross-border terrorism purposes resonated with several member countries, the IMF response is circumscribed by procedural and technical formalities, New Delhi said.

Pakistan's general government debt is estimated to rise to 73.6% of its gross domestic product (GDP) in 2025 from 70.1% last year, according to the IMF data.

Thanks to support from the IMF and other measures, Pakistan's foreign exchange reserves have stabilised in recent years. Its reserves were to the tune of $15.5 billion as of May 2, down from $16.1 billion in November 2024 but markedly up from $10.1 billion in early January 2023, which was its lowest in about nine years.

‘Strong programme implementation’

Approving the assistance for Pakistan, the IMF said: “The authorities have demonstrated strong programme implementation, which has contributed to improving financing and external conditions, and a continuing economic recovery.”

Moving forward, the priorities for Pakistan will include advancing reforms to strengthen competition, raise productivity and competitiveness, reform state-owned enterprises, improve public service provision and energy sector viability, and build climate resilience, the multilateral body said in a statement.

The support approved by the IMF on Friday followed its board’s first review under the Extended Fund Facility (EFF) Arrangement, allowing Pakistan to draw the equivalent of about $1 billion.

Pakistan’s 37-month EFF was approved by the Fund on September 25, 2024, and aims to build resilience and enable sustainable growth.

“Pakistan’s policy efforts under the EFF have already delivered significant progress in stabilizing the economy and rebuilding confidence, amidst a challenging global environment.” the multilateral body said, listing improvements in key indicators over the past one years.

The IMF, however, didn’t explain as to why Pakistan has required frequent bailouts from it over the past 35 years, a point underscored by India in its statement.