Finance Ministry denies India sought ADB aid cut to Pakistan after Pahalgam

The Finance Ministry has denied a report suggesting that Finance Minister Nirmala Sitharaman asked the Asian Development Bank (ADB) to reduce financial assistance to Pakistan in response to the recent terror attack in Pahalgam. In a tweet, the ministry said, "It is clarified this news is incorrect and has no basis in fact."

The denial came in response to a report that claimed Sitharaman had formally urged ADB President Masato Kanda to curtail funding to Islamabad during the bank's annual meeting in Milan. 

The report further cited government sources as saying India intended to question the $7 billion IMF aid package approved for Pakistan in July 2024 and was working to re-list Pakistan on the Financial Action Task Force (FATF) grey list. The aim, according to the report, was to impose stricter conditionalities on international aid to Islamabad.

The story also mentioned that India was engaging with European partners to push for this re-listing, citing concerns about regional security and fund misuse.

Adding a macroeconomic dimension, global rating agency Moody’s was cited as warning that any prolonged escalation of tensions with India could seriously harm Pakistan’s fragile economy. Moody’s cautioned that further geopolitical strain could disrupt external financing, pressure forex reserves, and hinder fiscal consolidation efforts. As of now, Pakistan’s reserves stand at just over $15 billion, far below what is required to service upcoming debt obligations.

By contrast, India’s forex reserves exceed $688 billion, backed by strong public investment and resilient private consumption, though Moody’s did caution that higher defence expenditure might slightly delay India's fiscal consolidation path.