IMF Gives $7 Billion Loan to Pakistan Despite India's Concerns of Terrorism Funding

12 May, 2025
IMF Gives $7 Billion Loan to Pakistan Despite India's Concerns of Terrorism Funding

Winning Bizness Desk

Mumbai.The International Monetary Fund (IMF) approved a $1.4 billion loan to Pakistan under its climate resilience program and completed the first review of a $7 billion Extended Fund Facility (EFF) agreement, unlocking an additional $1 billion. This brings total disbursements under the EFF to $2 billion. The IMF commended Pakistan's policy reforms aimed at stabilizing its economy despite global uncertainties.

India Raises Objections, Citing Terrorism Funding Risks

India expressed strong reservations about the IMF's financial assistance to Pakistan, arguing that such funds could be diverted to support cross-border terrorism. India abstained from the IMF Executive Board vote, with Foreign Secretary Vikram Misri urging board members to reconsider the decision in light of Pakistan's alleged support for terrorist activities.

Pakistan Dismisses India's Concerns as Unfounded

Pakistani Prime Minister Shehbaz Sharif rejected India's objections, asserting that attempts to derail the IMF program were unsuccessful. He emphasized that the IMF's decision was based on Pakistan's economic reforms and progress, not political considerations.

IMF Highlights Pakistan's Economic Challenges

Despite acknowledging Pakistan's efforts to restore economic stability, the IMF noted that the country faces significant structural challenges, including a narrow tax base, weak governance, and an outsized role of the state in the economy. These factors hinder investment and limit economic potential.

India's Limited Influence in IMF Decision-Making

India's voting power in the IMF stands at approximately 2.75%, significantly lower than the United States' 16.5%. Given that IMF decisions require an 85% majority, India's ability to unilaterally block funding decisions is limited. India has previously expressed concerns about the effectiveness of IMF programs in Pakistan, citing repeated bailouts without substantial economic reforms.

Pakistan's Ongoing Economic Reforms and External Support

Pakistan's finance minister, Muhammad Aurangzeb, acknowledged that the country would face "transitional pain" as it implements structural reforms required by the IMF. These reforms include increasing tax revenues and reducing government expenditures. Pakistan has also secured financial support from allies such as Saudi Arabia, China, and the UAE to bolster its economic stability.

Key Takeaways:

  • IMF approves $1.4 billion climate resilience loan and releases $1 billion under the $7 billion EFF to Pakistan.
  • India abstains from the IMF vote, citing concerns over potential misuse of funds for terrorism.
  • Pakistan dismisses India's objections, emphasizing economic reform progress.
  • IMF acknowledges Pakistan's efforts but highlights ongoing structural challenges.
  • India's limited voting power in the IMF restricts its influence over funding decisions.
  • Pakistan commits to implementing structural reforms despite anticipated economic hardships.
  • Financial support from allies complements IMF assistance to stabilize Pakistan's economy.