India abstains from IMF vote on Pakistan, flags terror funding concerns

The IMF board was scheduled to discuss both the review of the $7 billion program and a new sustainability loan for $1.3 billion over more than two years.

India abstained from voting at the Executive Board meeting of the International Monetary Fund (IMF), which was convened on May 9 to approve a $2.3 billion funding package for Pakistan.

The government said in an official statement that New Delhi had raised long-standing concerns with the IMF that international financial assistance to Pakistan could be diverted to fund military operations or cross-border terrorist activities.

“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,” the statement noted.

Calling it a "serious gap," the government stressed the need for international lenders to weigh ethical considerations alongside financial criteria.

“This is a serious gap highlighting the urgent need to ensure that moral values are given appropriate consideration in the procedures followed by global financial institutions,” it added.

At the meeting, India raised concerns over the efficacy of its programmes for Pakistan, and on the possibility of misuse of debt financing funds for “state-sponsored cross-border terrorism”.  The board meeting was convened today to review the Extended Fund Facility (EFF) lending program, worth $1 billion, to Pakistan. The board also considered a fresh Resilience and Sustainability Facility (RSF) lending program ($1.3 billion) for Pakistan.

“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,” the release said.

During the meeting, India flagged the Pakistan chapter of the IMF Report on ‘Evaluation of Prolonged Use of IMF Resources’. “The report noted that there was 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,” the release said.

Pakistan military’s deeply entrenched interference in economic affairs poses significant risks of policy slippages and reversal of reforms. “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,” India stated at the meeting.

“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,” the statement said.

Pakistan has been a prolonged borrower from the IMF, with a very poor track record of implementation and of adherence to the IMF’s program conditions. In the 35 years since 1989, Pakistan has had disbursements from the IMF in 28 years. In the last 5 years since 2019, there have been 4 IMF programs.

“Had the previous programs succeeded in putting in place a sound macroeconomic policy environment, Pakistan would not have approached the Fund for yet another bailout program. 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,” said the release.