India abstains from IMF vote on Pakistan loan; flags terror financing

India abstains from IMF vote on Pakistan's loan, citing risks of misuse for cross-border terrorism and warning against military interference in economic policy

India on Friday abstained from voting on two separate loans worth $2.3 billion sought by Pakistan from the International Monetary Fund (IMF), but red-flagged the possibility of misuse of these funds for state-sponsored cross-border terrorism. Rewarding it sends ‘a dangerous message’ to the world and ‘makes a mockery of global values,’ India said in a statement. The IMF okayed disbursement of $1 billion to Pakistan­, according to a PTI report.  India’s strongly worded statement pointed to Pakistan’s poor track record on adhering to the Fund’s loan conditions despite which it has received disbursements in 28 of the 35 years since 1989, a finance ministry statement said. These concerns were raised by India over the efficacy of IMF programs as “an active and responsible member country”, the statement stressed.  

 

 

“India pointed out that rewarding continued sponsorship of cross-border terrorism sends a dangerous message to the global community, exposes funding agencies and donors to reputational risks, and makes a mockery of global values. While the concern that fungible inflows from international financial institutions, like IMF, could be misused for military and state sponsored cross border terrorist purposes resonated with several member countries, the IMF response is circumscribed by procedural and technical formalities,” according to the statement.

 

India termed this “a serious gap” that showcases an urgent need to appropriately consider “moral values” in the procedures followed by global financial institutions like the IMF.

 

India’s concerns were conveyed at a review by the IMF board of an extended Fund Facility lending program of $1 billion and a fresh Resilience and Sustainability Facility lending program $1.3 billion for Pakistan.

 

Citing the Pakistan chapter of an IMF report on ‘Evaluation of Prolonged Use of IMF Resources’, India’s representative on the board pointed to ‘a widespread perception that political considerations have an important role to play in the IMF lending to Pakistan’.

 

“As a result of repeated bailouts, Pakistan’s debt burden is very high, which paradoxically makes it a too big to fail debtor for the IMF,” it pointed out, after noting the frequent loans disbursed to the country, including four lending programs since 2019. 

 

Pakistan military’s deeply entrenched interference in the country’s economic affairs poses significant risks of policy slippages and reversal of reforms, India pointed out.

 

“Even when a civilian government is in power now, the army continues to play an outsized role in domestic politics and extends its tentacles deep into the economy. In fact, a 2021 UN report described military-linked businesses as the ‘largest conglomerate in Pakistan’. The situation has not changed for the better; rather the Pakistan Army now plays a leading role in the Special Investment Facilitation Council of Pakistan,” it was pointed out to the IMF.

 

While Pakistan has been a ‘prolonged borrower’ from the IMF, India noted that it would not have sought ‘another bail-out program’ had the previous programs succeeded in putting in place a sound macro-economic policy environment. “India pointed out that such a track record calls into question either the effectiveness of the IMF program designs in case of Pakistan or their monitoring or their implementation by Pakistan,” the finance ministry statement said.

 

While India has traditionally refrained from voting on Pakistan's loan requests at the IMF board, last year, it had suggested that the IMF put in place conditions to ensure that Pakistan doesn't use such loans for defence spending  and repaying third country debt obligations.