India opposes ADB's $800 million aid to Pakistan, flags misuse concerns

India has raised strong objections to ADB's financial aid to Pakistan, citing concerns over cross-border terrorism, high defence spend, weak reforms, and governance risks

India has vehemently opposed Asian Development Bank’s (ADB’s) financial assistance of $800 million to Pakistan, raising concerns about potential misuse of the funds, sources said.

 

At a recent Board meeting of the ADB, New Delhi abstained from voting for assistance to Pakistan.

 

Indian officials cautioned the ADB on Pakistan’s increasing defence expenditure, its declining tax-to-GDP ratio, and the lack of demonstrable progress on key macroeconomic reforms.

 

ADB on Tuesday approved an $800 million programme to strengthen fiscal sustainability and improve public financial management in Pakistan.

 

“Pakistan has made significant progress in improving macroeconomic conditions,” said ADB country director for the country Emma Fan.

 

India, however, said that had the previous programmes, funded by both ADB and the International Monetary Fund (IMF) succeeded in putting in place a sound macroeconomic policy environment, then Pakistan would not have approached the IMF for the 24th bailout.

 

India, sources said, has highlighted that such a track record calls into question the effectiveness of the programme designs, their monitoring and implementation by the authorities.  

 

Tensions between India and Pakistan flared up following the Pahalgam terror attack of April 22, in which 26 civilians were killed. It culminated in the launch of “Operation Sindoor.”

 

Highlighting that Pakistan’s policy on cross-border terrorism has led to a worsening of the security situation in the region, India, sources said, flagged concerns on the country’s “highly unsatisfactory” progress on implementation of the most critical Financial Action Task Force (FATF) action items.

   

These relate to terrorist financing investigations, prosecution of leaders of UN-designated terrorist groups and freezing and confiscation of criminal assets, India said.

 

In May, India had abstained from voting at the IMF meeting to review the $1 billion lending programme for Pakistan. It raised concerns on the misuse of debt financing funds for state-sponsored cross border terrorism.

 

Source said India expected the ADB to closely monitor the implementation of the policy matrix to achieve the intended outcomes.

 

This is because policy reforms in Pakistan have been largely driven by external support in the last several years, from global financial institutions, including the ADB. 

 

Relying heavily on external support undermines local ownership and creates a cycle of dependency, added an official.



 

At the ADB Board meeting, India highlighted that while Pakistan's tax collection as a share of GDP declined from 13 per cent in FY18 to 9.2 per cent in FY23, there has been a significant increase in defence spending during the same period.

 

“This points to the possibility of diversion of funds made available to the country by the external agencies, including from financial institutions, especially those that are made available by fungible debt financing, through instruments such as policy-based loans, for increased defence spending,” India stressed, according to sources.

 

India urged the ADB management to adequately ring-fence its financing, to prevent any such misuse, sources said.

 

India’s representatives at the Board meeting also pointed out Pakistan's poor track record of implementation stemming from its military's deeply-entrenched interference in economic affairs, posing risks of policy slippages and reversal of reforms as witnessed in the past.

 

India expressed strong reservations about Pakistan’s existing governance system, which poses a severe threat to regional peace and security, sources said.

   

Finance Minister Nirmala Sitharaman had met ADB president Masato Kanda and sought enhanced support for integrated rural prosperity initiatives, including job creation, last week.

 

Kanda met Prime Minister Narendra Modi on June 1 while extending support to India's ambition of a 'Viksit Bharat' by 2047.