IMF Justifies $1 Billion Aid to Pakistan Despite India’s Terror Funding Concerns
Approval of Financial Package
The International Monetary Fund (IMF) has defended its decision to disburse over $1 billion (approximately ₹8,000 crore) to Pakistan under the Extended Fund Facility (EFF), asserting that Pakistan met all stipulated targets. The approval, finalized on May 9, 2025, forms part of a $7 billion agreement established in September 2024, with $2.1 billion already released in two tranches.
Timing Amid Regional Tensions
The disbursement coincides with heightened India-Pakistan tensions following India’s “Operation Sindoor,” targeting terrorist bases in Pakistan and Pakistan-occupied Kashmir. Pakistan’s retaliatory actions have amplified concerns, particularly as the IMF’s decision follows India’s military operations and ongoing cross-border skirmishes.
India’s Objections
Indian Defence Minister Rajnath Singh criticized the aid, alleging that Pakistan’s territory is used for terrorist activities and that such financial assistance indirectly fuels terrorism. India urged the IMF to reconsider the $2.1 billion package, citing risks of fund diversion to rebuild terror infrastructure.
IMF’s Rationale and Response
IMF Communications Director Julie Kozack stated that Pakistan’s compliance with EFF targets, including structural reforms, justified the disbursement. The IMF expressed hope for a peaceful resolution between India and Pakistan while emphasizing its neutral role in lending decisions.
New Conditions for Future Aid
For the next tranche, the IMF imposed 11 new conditions, including parliamentary approval of a ₹17.6 trillion budget, increased electricity surcharges, and lifting restrictions on importing cars older than three years. Pakistan must also outline a post-2027 financial sector strategy and phase out incentives for special technology zones by 2035.
Geopolitical and Reputational Risks
The IMF acknowledged that escalating India-Pakistan tensions could jeopardize Pakistan’s fiscal and reform goals, posing “enterprise risks” to the EFF program. It also noted reputational risks from perceived misuse of funds, urging careful communication to maintain impartiality.
IMF-Pakistan Financial Assistance Overview
Program Details
- Program: Extended Fund Facility (EFF)
- Total Agreement: $7 billion (approved September 2024)
- Disbursed to Date: $2.1 billion (two tranches)
- Recent Tranche: $1 billion (approved May 9, 2025)
Key Conditions for Future Disbursements
- Parliamentary approval of ₹17.6 trillion budget by June 2025
- Increase in debt service surcharge on electricity bills
- Removal of import restrictions on cars older than three years
- Publication of post-2027 financial sector strategy by June 2026
- Permanent legislation for captive power levy by May 2025
- Plan to phase out incentives for special technology zones by 2035
Geopolitical Context
- India’s Concerns: Alleged misuse of funds for terrorism; urged IMF to reconsider aid
- IMF’s Stance: Funds directed to central bank reserves, not government budget; neutral role emphasized
- Risks Noted: Tensions with India may hinder fiscal and reform objectives