MC EXPLAINER Inside Pakistan’s bailout addiction: 24 IMF loans, billions in debt, no reforms

For India, the question is urgent: how long can the world keep funding a state that funds terror? (Feature Image Credit: Upnesh Raval)

As Pakistan once again knocks on the International Monetary Fund’s (IMF) door for a $1.3 billion bailout, India is preparing to make its discomfort known. On May 9, the IMF board will meet to review Islamabad’s progress under its ongoing loan programme. This time, however, the usual economic discussions come with sharper undertones, shadowed by the deadly terror attack in Kashmir and fresh concerns over how Pakistan uses global financial aid.

The IMF’s Executive Board will convene to assess whether Pakistan has met reform benchmarks under the 37-month Extended Fund Facility (EFF) and to decide on disbursing the next $1.3 billion loan tranche. As the country’s economic woes deepen, this funding is critical for Pakistan, but politically and strategically fraught.

India, a major stakeholder at the IMF, has announced it will formally register its opposition at the board meeting.

India’s Foreign Secretary Vikram Misri, on May 8, said the Fund’s board should look ‘deep within’ and take into account the facts before generously bailing out the country.

“We have an executive director at the IMF. Tomorrow there is a meeting of the board… and I'm sure that our executive director will put forward India's position,” said Misri.

Follow our live coverage for real-time updates on the India-Pakistan tensions

The opposition comes just weeks after the April 22 Pahalgam terror attack, where 26 civilians, mostly tourists, were killed by operatives of The Resistance Front, a proxy of the Pakistan-based Lashkar-e-Taiba. For India, IMF funding to Pakistan now raises a fundamental question: Should international financial aid flow without accountability for state-sponsored terrorism?

Where Pakistan’s economy stands now

Despite some signs of recovery, the latest IMF South Asia Development Update (April 2025) highlights a sluggish and uneven economic rebound in Pakistan. Key takeaways:

• Inflation has slowed faster than anticipated
• Capital goods imports and consumer confidence have improved
• But economic activity remains weaker than forecast, and overall growth momentum is fragile

Growth estimates (IMF & World Bank):

• FY2022–23: -0.2% (contraction)
• FY2023–24: 2.5%
• FY2024–25: 2.7%
• FY2025–26: 3.1% (IMF), 3.2% (World Bank)
• FY2026–27: 3.5% (World Bank)

A long history of bailouts, few reforms

This bailout, Pakistan’s 24th IMF programme since 1958, is part of a long pattern of borrowing that has rarely delivered durable reforms. In 2024, Pakistan secured a $7 billion IMF package, with an initial $1 billion disbursed upfront.

Yet, Pakistan’s economic vulnerabilities are largely unchanged:

• External debt surged to $130 billion in 2024
• Only 2.5 percent of the population file tax returns
• Poverty rate rose from 40.2 percent in FY23 to 40.5 percent in FY24
• Inflation peaked at 38 percent in 2023, easing slightly since
• Youth unemployment stood at 9.7 percent in 2023
• Pakistan ranks 109th out of 127 in the 2024 Global Hunger Index
• 82 percent of people can’t afford a healthy diet

Despite repeated IMF nudges, Pakistan has failed to expand its tax base, cut unsustainable subsidies, or privatise unviable public-sector firms. According to the Observer Research Foundation, austerity measures, including fuel and energy price hikes, have disproportionately hurt the poor, leading to strikes, emigration, and social unrest.

Reform resistance and elite capture

While IMF programmes require governance overhauls, implementation has been slow and politically compromised. In 2025:

• The IMF Governance Diagnostic Mission reviewed six key sectors, including fiscal governance, AML, judicial independence, and public sector integrity
• A report on anti-corruption vulnerabilities, the GCDA, is due by July 2025
• Pakistan had promised to publish this report publicly, but a Cabinet Committee is now reconsidering whether to release only a summary, raising doubts about transparency

• Amendments to the Civil Servants Act are pending to make public officials’ asset declarations digitised and publicly accessible
• Reforms to the National Accountability Bureau (NAB) and anti-money laundering regime are under negotiation
• Provincial Anti-Corruption Establishments are to be empowered with cross-agency intelligence-sharing

Beyond governance, Pakistan’s macroeconomic distress is amplified by:

Chronic external dependence

• $2.5 billion financing gap in FY25
• $30 billion in debt servicing due this year alone
• Debt-to-GDP over 60 percent
• Climate vulnerability
• The 2022 floods displaced 33 million people, killed over 1,700, and caused $30 billion in damages
• Germanwatch ranked Pakistan the most climate-affected nation in 2022
• GDP may shrink by 18–20 percent by 2050 due to climate change, says IMF/World Bank

• The World Bank recently cancelled a $500 million budget support loan over unmet CPEC-related conditions
• It also froze all new budget support till June 2025

The backdrop to India’s tough stance is the Pahalgam attack on April 22, 2025. India asserts that terror groups operating from Pakistan continue to receive indirect state support via ISI safe havens, soft policies, and inaction.

New Delhi argues that IMF funds, even if earmarked for economic reform, risk being diverted unless there are strict safeguards.

As Foreign Secretary Vikram Misri made clear, “The case with regard to Pakistan should be self-evident to those people who generously open their pockets to bail out this country… I think you would also have an idea on how many of those programmes have reached successful conclusions. Probably, not many. So, this is a decision that (IMF) Board members have to take by looking deep within themselves and looking at the facts.”

For India, the message is unequivocal: economic assistance must be conditional on real reform and regional security commitments. As the IMF Board convenes on May 9, New Delhi will make its stand plain, choosing principle over pocketbook, and accountability and stability over short-term relief.