IMF's Pak loan review: India to question Pakistan's Brics Bank stake plan

Even as the International Monetary Fund (IMF) has kicked off its first review of a $7 billion bailout facility extended to Pakistan last year, India is set to red-flag Islamabad’s plan to invest nearly $600 million in the New Development Bank (NDB) set up by Brics nations when the loan’s second tranche is considered by the IMF board.

 

India has generally abstained from voting on loans sought by Pakistan in the IMF’s executive board meetings. However, in January 2024, when the board was reviewing an earlier $3 billion short-term Stand-By Arrangement (SBA) granted to Pakistan, India had urged the IMF to ensure “stringent monitoring” of any emergency funds provided to its neighbour.

 

Underlining the need for “checks and balances”, the Union government, through its executive director on the Fund’s board, had conveyed that “such monitoring is imperative to ensure that funds received to meet development imperatives are not diverted towards defence spending and repayment of external debt owed to third countries”.  

 

The trigger for India’s fresh concern stems from a decision by the Pakistan Cabinet’s Economic Coordination Committee, to purchase shares in the Shanghai-based NDB worth $582 million for a reported 1.1 per cent stake.

 

The NDB is a multilateral development bank established by Brazil, Russia, India, China, and South Africa (Brics) in 2015, that has been operational since 2016. Led by Pakistan’s Finance Minister Muhammad Aurangzeb, the panel indicated that a stake in NDB will align the country with the Brics nations, enhancing economic cooperation and access to funding for development projects.

 

While Pakistan is learnt to have reasoned that an NDB foray will also reduce its dependence on the western lenders like the IMF, India is looking to point out the anomaly and ‘doublespeak’ of a nation seeking IMF cash to get through yet another crisis, and still making plans to deploy precious forex for an investment in another multilateral lender. 

 

IMF staff, led by mission chief Nathan Porter, had landed in Pakistan last week to undertake a review of its 37-month $7 billion loan package, of which around $1 billion has already been disbursed. The staff review will assess Pakistan’s progress on the reform parameters mandated by the IMF as conditions for the loan, such as raising the country’s tax base, pushing privatisation, rebuilding policy-making credibility, and entrenching macroeconomic sustainability.

 

The IMF board will decide on the disbursal of the next tranche of $1.1 billion based on the staff’s findings. The Finance Ministry and India’s executive director on the IMF board, Krishnamurthy Subramanian, did not respond to Business Standard’s queries on the issue.

 

“Regarding the NDB membership, Pakistan has conveyed its interest to join, but the matter has not moved to the stage of any formal or informal discussion among the shareholders. Therefore, any payment for the membership does not appear to be around the corner,” said a senior source aware of the development.

 

On India’s earlier request to the IMF regarding the usage of loaned funds by Pakistan, the source said: “It is for the IMF to monitor that its facility loan is not used to repay the debt to another country or is not used for defence purchases.”

 

An official privy to India’s recent assertions at IMF, however, said that Pakistan’s NDB plans will certainly be pointed out as a matter of concern to the Washington-based global lender of last resort.

 

“It is absurd for a country to tap the IMF for dollars and plan investments in another lender, especially since Pakistan has received multiple bailouts from the IMF over the years. Of late, India has been sensitising the IMF board on sharp double-digit spikes in Pakistan’s arms imports and defence spending bills in the years the Fund disbursed loans to the nation, while it generally failed to deliver on the reforms agenda mooted by the IMF under these programs,” this official said.  

 

In 2021, the NDB Board of Governors approved the entry of Bangladesh, UAE, Egypt and Uruguay as new member countries. The bank’s five founding members, including India, have 18.98 per cent stake each, based on an initial share subscription worth $10 billion each.   

Raising an Eyebrow 

> The IMF is undertaking its first review of a $7-billion loan facility to Pakistan

> India is concerned about Islamabad’s plan to purchase shares worth $582 million in the New Development Bank 

> In 2024, India had asked the IMF for “stringent” oversight of funds provided to Pakistan so it doesn’t use them to repay other nations’ debt, or ramp up defence spending