India red flags Pakistan's past track record as Asian Development Bank approves $800 million financial aid

India highlighted that Pakistan's tax collection as a share of GDP declined from 13.0% in FY2018 to 9.2% in FY2023 and continues to remain way lower than the Asia and Pacific average of about 19.0%.

India has flagged the poor financial track record of Pakistan as the Asian Development bank approved a $800 million grant. Sources say that “India shared deep concerns regarding the potential misuse of ADB resources, particularly in light of Pakistan’s increasing defence expenditure, its declining tax-to-GDP ratio, and the lack of demonstrable progress on key macroeconomic reforms.”

In Islamabad, Pakistani finance minister Muhammad Aurangzeb’s advisor Khurram Schehzad confirmed the development. In a statement posted on social media, Schehzads said that the ADB’s financial aid includes a $500 million programme-based guarantee and a $300 million policy-based loan.

Also Read: Operation Sindoor: Pakistani document shows India's extensive strikes; lists 7 new targets

Vehemently opposing the Asian Development Bank extending any form of financing support to Islamabad, New Delhi “cautioned the ADB regarding the possibility of misuse of its resources. The linkage between Pakistan's increase in expenditure on its military, as opposed to on development, cannot be fully explained solely in terms of its domestic resource mobilisation,” sources said.

“India highlighted that Pakistan's tax collection as a share of GDP declined from 13.0% in FY2018 to 9.2% in FY2023 and continues to remain way lower than the Asia and Pacific average of about 19.0%. However, there has been significant increase in defence spending in the same period. This points to possibility of diversion of funds made available to the country by the external agencies, including from IFIs, especially those that are made available by fungible debt financing, through instruments such as Policy Based loans, for increased defence spending. India expects the ADB management to adequately ring-fence the ADB financing, to prevent any such misuse,” sources further said.

Also Read: 6 Pakistani fighter jets shot down, 10 UCAVs taken out in India's Operation Sindoor: Report

Questioning the financial health of Pakistan, sourecs said that India “also pointed out that though the management has highlighted the improvements made by Pakistan in certain areas of reforms, had the previous programs, funded both from ADB and the IMF, succeeded in putting in place a sound macro-economic policy environment, the country would not have approached the IMF for the 24th bail-out program. Such a track record calls into question both, the effectiveness of the program designs, their monitoring and their implementation by the authorities. Pakistan's poor track record of implementation stems from the military's deeply entrenched interference in economic affairs, posing risks of policy slippages and reversal of reforms as has been witnessed in the past. 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.”

Calling out the doublespeak of Pakistan in harbouring the terrorists and safeguarding the terror infrastructure in the country, sources added that New Delhi “expressed strong reservations about Pakistan’s existing governance system, which poses a continuing severe threat to regional peace and security. The country's policy of cross-border terrorism has led to a worsening of the security situation in the region and has significantly escalated macroeconomic risks for Pakistan, which also heightens the enterprise risks for the ADB. The progress on implementation of the most critical FATF action items relating to terrorist financing investigations and prosecution of leaders of UN-designated terrorist groups and freezing and confiscation of criminal assets, is highly unsatisfactory.”

"India also highlighted that the economic fragility of the borrowing country (Pakistan) poses credit risks to the ADB too. Pakistan's continued reliance on external debt raises concerns about the long-term sustainability of future exposures, especially in view of the high debt-to-GDP ratio and poor credit rating of the country. Therefore, India urged ADB to be vigilant to safeguard the bank's financial health and long-term prospects," sources also said.