Despite terror concerns, what led IMF to approve Pakistan's bailout package

India abstained from the IMF vote, warning of potential misuse of funds; the IMF said Pakistan met reform targets and that disbursed funds were directed to the central bank

The International Monetary Fund (IMF) on Thursday defended its decision to approve a recent bailout tranche for Pakistan under its Extended Fund Facility (EFF), saying the country had met key reform targets. The explanation comes amid strong objections from India, which abstained from the vote, citing concerns over potential misuse of funds for terrorism-related activities.

 

IMF’s clarification

 

IMF Director of Communications Julie Kozack said during a press briefing that the Executive Board approved the disbursement after Pakistan passed the programme’s first review.

 

“The IMF’s Executive Board approved Pakistan’s EFF programme in September 2024, and the first review was scheduled for Q1 of 2025. On March 25, 2025, staff reached a staff-level agreement with Pakistani authorities. This was approved by the Board on May 9, leading to disbursement,” Kozack said.

 

 

She added that such reviews are standard IMF procedure and assess a country’s compliance with agreed conditions and whether any policy adjustments are needed. “In the case of Pakistan, the Board found that all targets had been met, and progress had been made on reforms,” she said. 

 

IMF vote: No disclosure

 

When asked about the voting details, Kozack responded, “We do not disclose that publicly.” She added, however, that there was “sufficient consensus at the board to complete the review.”

 

India had abstained from the vote, arguing that Pakistan’s “poor track record” and the risk of “misuse of debt financing for state-sponsored cross-border terrorism” could not be overlooked. 

 

Safeguards against misuse

 

On concerns about the misuse of IMF funds, Kozack clarified that all EFF disbursements are directed to the reserves of Pakistan’s central bank and not towards budget financing. She outlined several safeguards in place:

 

• Targets on the accumulation of international reserves
• A zero target for central bank lending to the government
• Structural conditions aimed at strengthening fiscal management

 

In addition, the IMF has imposed fresh conditions on Pakistan to be met before the next tranche is released. 

 

India’s position

 

India’s abstention came in the backdrop of heightened tensions between New Delhi and Islamabad, following the 22 April Pahalgam terror attack, which killed 26 civilians. In response, India launched Operation Sindoor on 7 May, targeting nine terror camps in Pakistan and Pakistan-occupied Jammu & Kashmir. Pakistan retaliated with drone strikes on 8 May, which were intercepted by Indian forces. Both countries agreed to halt hostilities on 10 May.

 

India, in its statement at the IMF, raised serious concerns about Pakistan’s history of funding terrorism and warned global financial institutions to exercise greater moral oversight.

 

“While the concern that fungible inflows from international financial institutions like the IMF could be misused for military and state-sponsored cross-border terrorist purposes resonated with several member countries, the IMF’s response remains bound by procedural formalities. This is a serious gap,” India said in its official note.

 

The statement added that there is an urgent need for international financial institutions to incorporate ethical considerations in their disbursement frameworks.