Concerns raised by India over IMF’s Lending to Pakistan

Posted 17 Jun 2025

Updated 19 Jun 2025

4 min read

Why in the News?

International Monetary Fund's (IMF's) Executive Board completed the first review of Pakistan's economic reform program supported by the Extended Fund Facility (EFF) Arrangement.

Know the term explaining Special Drawing Rights of IMF

More on the News

IMF allowed the disbursement of around $1 billion (Special Drawing Rights (SDR) 760 million) under EFF.
- EFF: It assists countries experiencing serious payment imbalances because of structural impediments or slow growth and an inherently weak balance-of-payments position.
It also approved lending of US$1.4 billion (SDR 1 billion) under the Resilience and Sustainability Facility (RSF) lending program.
India criticized the approval of the lending and abstained from the voting process.

Infographic explaining important information about IMF like its genesis, Mandate, membership, Organizational structure, reports etc.

Key Lending Instruments of IMF Funds
General Resources Account (GRA)	Poverty Reduction and Growth Trust (PRGT)	Resilience and Sustainability Trust (RST)
Lending on non-concessional terms (market-based interest rates) through the Financial Transactions Plan mechanism. Aim: To resolve a country's balance of payments (BoP) problems. Members can take loans with limits corresponding to their quota. Lending Facilities: Stand-by Arrangement (SBA); Extended Fund Facility (EFF); Rapid Financing Instrument (RFI); Flexible Credit Line (FCL); Short-term Liquidity Line (SLL); etc.	Longer duration and Concessional financial support, including interest-free financing to the poorest for low-income countries (LICs). Aim: To address the needs of low-income countries in resolving BoP crisis. Lending Facilities: Rapid Credit Facility (RCF); Standby Credit Facility (SCF) and Extended Credit Facility (ECF).	Offers longer-term financing at affordable interest rates to low-income and vulnerable middle-income countries. Aim: To build resilience to external shocks like climate change and pandemic preparedness. Lending Facilities: Resilience and Sustainability Facility (RSF)

Concerns raised by India over IMF's Lending

Misuse of Funds: Funds could be used for military and state-sponsored cross border terrorist activities.
Role of military: Pakistan military's strong involvement in economic matters increases the risk of policy failures and reversal of reforms.
Undermining Global Values: Lending could be seen as a reward to countries that sponsored cross-border terrorism (linked to proxy warfare), exposing funding agencies and donors to reputational risks.
Prolonged Use of IMF Resources: Due to repeated bailouts, Pakistan now has a heavy debt burden, making it too big to fail debtor for the IMF.
Undermines effectiveness of the IMF program: Since 1989, Pakistan has received IMF funds in 28 out of 35 years, raising doubts about the effectiveness of the IMF's programs, their monitoring, or Pakistan's implementation.

Other Key Challenges/Concerns associated with IMF

Ineffective voting process: There is no provision to vote against a loan or proposal.
- E.g., India had to abstain from the IMF vote as the system does not allow a formal "no" vote.
Undemocratic Governance Structure: Distribution of voting power (based on quota) remains severely imbalanced in favour of the US, European countries and Japan, in particular.
- E.g. In 2010, IMF changed its rule to lend Greece.
Ineffective Evaluation Process: IMF established the Independent Evaluation Office (IEO) in 2001 to evaluate various aspects of IMF performance.
- However, although IEO is being positioned as 'independent' but it is governed and financed directly by IMF.
Varied success: IMF conditionalities have sometimes led to short-term macroeconomic stability but at the cost of increased poverty and reduced social spending due to Fiscal consolidation measures (or austerity).
Implementation issues: Member countries that borrow from the IMF have primary responsibility for selecting, designing, and implementing policies to make their economic program successful.

Conclusion

While the IMF plays a crucial role in stabilizing the global financial system, it faces serious challenges related to governance imbalance, rigid conditionalities, etc. To remain credible and effective, it must accelerate quota and voting power reforms to reflect the rise of emerging economies and enhance transparency and accountability in its lending and evaluation processes.