The IMF’s Executive Board on May 9, 2025 completed the first review of Pakistan’s 37-month Extended Fund Facility (EFF) arrangement, authorizing Pakistan to draw about $1 billion (SDR 760 million) under the program. This review also included approval of Pakistan’s request for a new $1.4 billion Resilience and Sustainability Facility (RSF), aimed at bolstering climate and disaster resilience. The combined loans are part of a larger ~ $7 billion IMF program for Pakistan. At the same meeting, the IMF noted that Pakistan’s authorities had “demonstrated strong program implementation” and that the economy was showing “continuing economic recovery”.
In Washington, the IMF’s board meeting room featured a panel on Pakistan’s program. According to the IMF, Pakistan’s EFF (approved Sept. 25, 2024) focuses on “building resilience and sustainable growth,” with key priorities including macroeconomic stabilization, tax-base broadening, fiscal consolidation, structural reforms (competition, SOE and energy sector reforms), and climate resilience. The IMF highlighted recent progress: Pakistan achieved a primary fiscal surplus (about 2% of GDP in H1 2025) and saw inflation fall to a historic low (0.3% in April 2025). It credited tight monetary policy for bringing inflation down, and noted that foreign reserves had begun to rebuild (from $9.4 billion in Aug 2024 to $10.3 billion in Apr 2025, with a $13.9 billion target by June 2025).
Pakistan’s prime minister, Shehbaz Sharif, welcomed the approval. A government statement said the first review signal of “strong program implementation” would bring about $1 billion into Pakistan’s reserves. In a separate statement, Sharif thanked China, calling it a “most sincere friend” for support in securing the IMF deal, noting that Beijing had recently agreed to roll over a $2 billion loan repayment to help Pakistan’s reserves.
Loan Structure, Conditions, and Timeline
Under the existing EFF, Pakistan will now receive the ~ $1 billion disbursement immediately. This brings total EFF disbursements to roughly $2.1 billion out of a planned $3.5 billion over 37 months. (The EFF was originally approved in Sep 2024 and runs through mid-2027.) The new RSF arrangement – effectively a climate-focused loan – has been set up alongside this program, providing about $1.4 billion (SDR 1 billion) to help Pakistan cope with natural disasters, water scarcity, and climate risks. However, the RSF funds are not immediately disbursed; the board approved the arrangement for future disbursement, subject to Pakistan meeting its RSF benchmarks.
The IMF press release summarized Pakistan’s reform commitments: broadening the tax base and rebuilding reserves; reforming energy and other subsidies; improving state-owned enterprises and public services; and enhancing competitiveness and climate resilience. For example, Pakistan has already passed an Agricultural Income Tax and targeted public spending discipline to generate the projected primary surplus. The IMF notes that continuing these fiscal reforms (along with tighter monetary and more flexible exchange rate policies) will be crucial to “safeguard the macroeconomic gains” and support sustained recovery.
Key features of the IMF arrangement include:
- Extended Fund Facility (EFF, 37 months) – Builds macro stability: strict fiscal targets (e.g. primary surplus ~2.1% GDP by FY25) and reserve rebuilding; disinflation (inflation target below 8% by end-2025); structural reforms (energy pricing, SOE governance, private sector growth).
- Resilience & Sustainability Facility (RSF) – ~$1.4B climate adaptation facility: funds projects and reforms to reduce disaster risk, improve water use efficiency, strengthen finance against climate shocks, and disclose climate-related risks in the banking sector.
- Access and Disbursement – After board approval, ~$1B was made immediately available from the EFF. Further draws from both EFF and RSF will depend on meeting quarterly/annual performance targets.
The IMF’s deputy managing director, Nigel Clarke, noted that Pakistan had made “important progress in restoring macroeconomic stability” amid a difficult environment. Yet he cautioned that “risks to the outlook remain elevated” from global uncertainty and domestic vulnerabilities, and urged accelerated reform implementation (including timely tariff adjustments and financial sector safeguards). Notably, Clarke emphasized strengthening Pakistan’s anti-money-laundering (AML) and counter-terrorist-financing (CFT) frameworks as part of the effort.
IMF Voting Rules and India’s Abstention
The IMF Executive Board’s 25 directors represent the Fund’s 190+ members (either individually or in constituencies). Major shareholders like the United States (16.5% voting power) and European countries (collectively ~33%) have the most influence; China holds about 6.1%, India ~2.6%, and Pakistan only ~0.4%. (For context, the U.S. manages an individual seat with veto power on major issues, while India is part of an eleven-nation constituency led by itself.) Decisions require a weighted majority of the voting power, not unanimity.
IMF rules allow members to cast “yes” votes, abstain, or be absent, but not to formally vote “no” on loans or policy reviews. Thus, when India “abstained” from the Pakistan vote, it was effectively blocking support only symbolically – it could not actually veto the loan. Officials explained that India’s abstention was deliberately chosen over a “no” vote because the latter is not an option under IMF procedures. In effect, India used the opportunity to publicly register objections and force a statement of its views, rather than simply being absent.
According to media reports, India’s Executive Board representative repeatedly raised concerns during the review meeting. India flagged Pakistan’s poor track record with IMF programs, noting that Pakistan has been a consistent borrower (with IMF disbursements in 28 of the past 35 years) and has had four separate IMF programs in the last five years. India questioned why previous programs “had not put in place a sound macroeconomic environment,” calling Pakistan “a too-big-to-fail debtor” for the IMF and warning of diminishing returns from repeated bailouts. India also highlighted governance issues – for example, that the Pakistani military continues to dominate economic decisions, which undermines civilian oversight and reform. These points were made to underscore India’s broader argument that past IMF aid to Pakistan has not yielded durable change.
India’s Concerns: Terrorism and Transparency
India’s statement to the Fund went beyond economics, explicitly linking the loan to regional security and terrorism. Indian officials argued that Pakistan’s history of sponsoring cross-border terrorism made the IMF decision problematic. In New Delhi’s view, providing IMF funds “rewards continued sponsorship of cross-border terrorism” and could pose “reputational risks” for international institutions. India cautioned that if Pakistan uses these funds in part to free up its budget for defense or covert activities, it would send a dangerous signal globally. One Indian official was quoted as saying that international agencies and donors must not be “exposed…to reputational harm” by inadvertently financing a country that “sends terrorists across the [border]”.
These objections echo persistent Indian allegations that Pakistan’s intelligence agencies support militant groups targeting India, particularly in disputed Kashmir. India’s statement noted that Islamabad’s military-run Special Investment Facilitation Council (SIFC) now plays a lead role in the economy, raising fears that loan money could be diverted to unmonitored channels. Citing a United Nations report, India pointed out that “military-linked businesses” in Pakistan are effectively its largest conglomerate, suggesting a conflict of interest.
Critics within India’s ruling party labelled the IMF loan “outrageous”, accusing the global fund of “indirectly” funding terror. For example, the Chief Minister of Kashmir called the IMF move “absurd” and warned it could embolden militants. (Pakistan’s civilian leadership, however, strongly denies any state sponsorship of terrorism, and Prime Minister Sharif has dismissed India’s objections as politically motivated.) Sharif responded publicly that Pakistan would continue its reforms, and that “India’s attempts to sabotage the IMF program have failed”. In general, Pakistan framed the IMF deal as critical to economic stability and thanked China in particular for its backing.
Pakistan’s History with the IMF and Reform Record
Pakistan has a long history of IMF engagement. Since joining in 1950, it has signed over 25 lending arrangements with the Fund. In recent decades, this relationship has become continuous: as one analyst noted, “Pakistan’s 24th IMF programme since 1958… is part of a long pattern of borrowing that has rarely delivered durable reforms”. From the 1980s onward, Pakistan averaged an IMF program nearly every two years, particularly in times of economic crisis. In the past five years alone, it took IMF support four times (including Stand-By and EFF arrangements).
Yet critics say Pakistan’s compliance with past program conditions has been spotty. For example, a 2019–22 EFF arrangement (39 months, ~$3 billion) was concluded when Pakistan met most targets, but economists note it left key challenges unresolved. In 2023–24, Pakistan swiftly negotiated a nine-month $3 billion Stand-By Arrangement (SBA) to anchor fiscal policy between elections, which the IMF said stabilized the economy. The SBA helped Pakistan achieve a fiscal surplus and reduce inflation in 2023. However, fundamental issues remained: only a small fraction of the population pays taxes, power subsidies and circular debt ballooned, and structural reforms (e.g., privatizations) were deferred due to political resistance.
According to observers (including India’s analysts), long-standing governance and transparency problems have blunted IMF efforts. Despite repeated fund suggestions, Pakistan has consistently failed to dramatically expand its tax base or cut subsidies. Social unrest often follows austerity measures: past fuel and electricity price hikes have triggered protests or opposition in Parliament. An Indian analysis pointed out that key governance reforms have lagged: for example, an anti-corruption audit report (GCDA) promised to be public was reportedly held back, raising doubts about transparency. The Observer Research Foundation similarly noted that tax reforms have been insufficient, and that economic policies (while stabilizing GDP) have not yet reduced poverty or inequality.
To illustrate Pakistan’s precarious finances, consider: external debt was about $130 billion in 2024, inflation surged to 38% at its peak in 2023, only 2.5% of Pakistanis file income tax returns, and roughly 40% of the population lives in poverty or near-poverty. This chronic weakness is why Pakistan regularly turns to external help. Even after the latest $1 billion disbursement, Pakistan’s outstanding IMF loans amount to several billion SDRs (about $6.2 billion).
Terrorism Concerns and International Views
Beyond India’s objections, many analysts note that Pakistan’s security landscape is complex. Historically, Pakistan has been accused by its neighbors and Western countries of tolerating militant groups on its territory. Western media and U.S. officials have described Pakistan’s northwestern tribal areas (along the Afghanistan border) as a “safe haven” for groups like the Tehreek-e-Taliban Pakistan (TTP) and the Islamic State’s Khorasan affiliate. India, in particular, insists that Pakistan’s intelligence agencies fund and train insurgents fighting Indian rule in Kashmir, an allegation Pakistan denies.
For example, the U.S. State Department’s annual terrorism reports have long listed the TTP, Balochistan insurgents, and various jihadi cadres as active in Pakistan. (Pakistan is not officially on the U.S. “State Sponsors of Terrorism” blacklist, but U.S. policymakers often warn Islamabad to crack down on extremist financing.) In the United Nations, Pakistan is a member of the Financial Action Task Force (FATF) and had been on FATF’s “grey list” for AML/CFT deficiencies until 2022; it passed a FATF compliance plan then, but remains under global scrutiny.
Critics of the IMF loan worry that, even if funds go to the central bank, they free up government resources that could indirectly benefit the military or intelligence agencies. IMF disbursed funds are fungible, meaning Pakistan can use its own revenues or other aid for security spending while spending the IMF cash elsewhere. India’s finance ministry statement noted that many IMF partners privately share concern that “fungible inflows could be misused for military and terrorist purposes”.
The IMF itself maintains it cannot police the end-use of funds beyond macro targets. However, the Fund has reinforced anti-corruption and anti-terror-finance safeguards in its programs. Nigel Clarke explicitly called for strengthening Pakistan’s AML/CFT laws as part of the reform effort. Indeed, the IMF’s program includes requirements to tighten financial regulations and improve governance in banking and public sector institutions. But India pointed out to the board that these safeguards often lack enforcement if domestic politics block implementation. India lamented that the IMF’s response was “circumscribed by procedural and technical formalities” and that the Fund’s own evaluation had noted political influence affecting Pakistan lending.
In short, while the IMF is conscious of terrorism-related financial risks, its mandate is to address economic stability. The Fund’s support is intended to stabilize Pakistan’s economy, which, if successful, could reduce the conditions that militants exploit. Still, for India and others, the unresolved question is whether stronger anti-terrorism measures will accompany the economic program or remain outside its scope.
Geopolitical Context
The IMF decision comes against a backdrop of intense India–Pakistan tensions. Just weeks earlier, an Islamist attack in India-administered Kashmir killed 26 Hindu pilgrims, leading to unprecedented cross-border exchanges of fire. India’s subsequent strikes inside Pakistan (“Operation Sindoor”) and tit-for-tat missile launches have brought the two nuclear neighbors closer to open conflict. In this climate, India’s abstention at the IMF was also a diplomatic signal reflecting its broader security dispute with Pakistan.
Global powers watched closely. The United States, as the IMF’s largest shareholder, generally favors financial stability in the region and has quietly urged Pakistan to implement IMF-mandated reforms. Washington did not formally oppose the loan (the U.S. vote was reportedly a “yes”), but U.S. officials consistently demand that Pakistan act against extremist groups as a condition of any aid. China, by contrast, has become Pakistan’s chief economic partner: Prime Minister Sharif’s recent Beijing visit yielded promises of Chinese investment in the China-Pakistan Economic Corridor. China has also provided direct support to Pakistan’s reserves (e.g., rolling over its $2B loan). Pakistan’s leadership publicly credited China with making the IMF deal possible, reflecting how Beijing’s backing gave confidence to international lenders.
In the IMF’s Board, no single member dominates aside from the U.S., but major European and Asian shareholders (Japan, China, Gulf states) also play key roles. In effect, the decision reflects a consensus that Pakistan’s economy needs support now: IMF official statements highlighted Pakistan’s economic improvement and recovery prospects, not its security issues. However, India’s objections – voiced on the record – illustrate a growing impatience in the region with the status quo. Indian officials have argued that repeated bailouts without accountability perpetuate the cycle of crisis, and they urged the IMF to factor “moral values” into its lending decisions.
For the IMF, this loan is one episode in a long, complex relationship with Pakistan. Historically, the Fund’s focus has been technical: crisis stabilization and poverty mitigation. But in South Asia’s charged geopolitical climate, economic aid and security are entwined. The Fund now has to tread carefully, enforcing economic conditions while the region waits to see if Pakistan genuinely uses the funds for reform rather than conflict. As one analyst put it, the challenge is ensuring that IMF support “helps Pakistan build a resilient economy” without inadvertently underwriting any form of state-sponsored violence.
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