IMF relief to Pakistan: $1 billion loan approved despite India’s warning over terror funding

The International Monetary Fund (IMF) Executive Board has approved the disbursement of a second loan tranche of $1 billion to Pakistan under its Extended Fund Facility (EFF), even as India abstained from voting, citing serious concerns about the misuse of financial aid for state-sponsored terrorism, according to Pakistan Prime Minister's Office.

"Prime Minister Shehbaz Sharif expressed satisfaction over the approval of a USD 1bn dollar instalment for Pakistan by the IMF and the failure of India’s high-handed tactics against it," according to a statement issued by the PMO.

It said Pakistan's economic situation has improved and the country is moving towards development.

This approval follows the IMF’s review of Pakistan's progress under the EFF program, which has been marked by recurring financial crises and a poor track record of implementing previous IMF programs. India had raised alarms about Pakistan’s consistent failure to use past IMF loans effectively, questioning whether the Fund’s program designs and monitoring mechanisms are suited to the country’s economic and political realities.

India highlighted that despite four IMF programs in the last five years, Pakistan continues to face economic instability, making it unclear whether future disbursements would yield any more success. “Had the previous programs succeeded in putting in place a sound macroeconomic policy environment, Pakistan would not have approached the Fund for yet another bailout,” India pointed out, suggesting that the IMF’s approach to Pakistan may not be yielding long-term results.

A critical point raised by India was Pakistan’s military's persistent role in economic and political affairs. Despite a civilian government, Pakistan's military continues to exert substantial influence over domestic policy, including economic decisions. A 2021 UN report called military-linked businesses the “largest conglomerate in Pakistan,” underscoring the deep entanglement of the armed forces in the country’s financial ecosystem. India expressed concerns that this ongoing military interference could undermine any reforms initiated through the IMF’s assistance.

Moreover, India strongly warned that continued financial support to Pakistan could inadvertently reward the country’s ongoing sponsorship of cross-border terrorism, exposing international institutions to reputational risks. “Funding agencies must take into account the moral implications of supporting countries with such a record,” India stated, underlining the dangers of rewarding Pakistan’s destabilising activities in the region.