Last week, the International Monetary Fund (IMF) slapped 11 new conditions on Pakistan for the release of the next tranche of its bailout program.
IMF Defends $1 Billion Disbursement to Pakistan Amid India-Pakistan Tensions, Reiterates Commitment to Economic Reforms
The International Monetary Fund (IMF) has defended its recent disbursement of $1 billion (over ₹8,000 crore) to Pakistan under the Extended Fund Facility (EFF), stating that the country fulfilled all requisite conditions for the release of the funds. This tranche was approved despite escalating geopolitical tensions between Pakistan and India, following India’s launch of Operation Sindoor—a military campaign targeting terrorist infrastructure in Pakistan and Pakistan-Occupied Kashmir (PoK).
India had earlier voiced strong objections to the IMF’s decision to support Pakistan with financial aid. In a formal communication, New Delhi urged the global financial institution to reassess its $2.1 billion bailout programme for Pakistan, asserting that the funds risk supporting a nation accused of enabling cross-border terrorism. Defence Minister Rajnath Singh strongly criticized the aid package, terming it “a form of indirect funding to terror.”
IMF Clarifies Its Position
Addressing these concerns during a press briefing, IMF Director of Communications Julie Kozack clarified the rationale behind the latest loan disbursement. “The IMF Executive Board found that Pakistan had indeed met all the required structural benchmarks and quantitative performance criteria. Progress was noted in key reform areas, which warranted approval of the program’s continuation,” Kozack stated.
She outlined the timeline of the review process, noting that the first evaluation of the programme was scheduled for the first quarter of 2025. “On March 25, 2025, IMF staff reached a staff-level agreement with Pakistani authorities, which was later approved by the Executive Board on May 9. This led to the release of the $1 billion disbursement,” she added.
In her remarks, Kozack also addressed the broader context of the India-Pakistan conflict. “We express deep sympathy for the lives lost and the human toll from the recent hostilities. The IMF sincerely hopes for a peaceful resolution to the conflict between the two nations,” she said.
India’s Concerns: Terror Funding and Regional Stability
India’s appeal to the IMF stems from its longstanding position that Pakistan has facilitated terrorist activities across borders, a claim that gains prominence in light of recent events. Operation Sindoor, launched by Indian forces, was aimed at dismantling terror launchpads believed to be operating with state support from within Pakistan.
Indian officials argue that any form of international financial assistance to Pakistan, without addressing its security-related conduct, undermines regional peace and essentially enables state-sponsored terrorism. In light of this, the Ministry of External Affairs reportedly sought greater accountability from the IMF, including provisions to ensure that disbursed funds are not diverted towards hostile or destabilizing activities.
IMF’s Conditions for Continued Support
Despite approving the disbursement, the IMF has imposed stringent new conditions on Pakistan for the release of the next tranche of funding. These 11 conditions are aimed at stabilizing Pakistan’s fragile economy and advancing structural reforms. The global lender has also flagged the ongoing tensions with India as a significant risk to the sustainability of its fiscal, external, and governance objectives in Pakistan.
Among the most critical stipulations is the requirement for parliamentary approval of a Rs 17.6 trillion federal budget for the upcoming fiscal year. The IMF has also mandated an increase in the debt-servicing surcharge on electricity bills, a politically sensitive move given the country’s already strained energy sector and rising inflation.
Other conditions include:
- Liberalization of Import Policies: The IMF has instructed Pakistan to lift the ban on importing vehicles older than three years, signaling a broader push towards market deregulation.
- Long-Term Financial Sector Strategy: The Pakistani government must formulate and publish a roadmap for its post-2027 financial sector strategy, which will define the institutional and regulatory environment starting in 2028.
- Legislative Measures: The IMF has demanded that the current Captive Power Levy Ordinance be made permanent through parliamentary legislation before the end of the current month.
- Industrial Incentive Reforms: A plan must be developed to phase out all incentive programs associated with Special Technology Zones and other industrial parks by 2035, with a focus on improving fiscal transparency and competitiveness.
Strategic Implications and Regional Outlook
The IMF’s decision to continue supporting Pakistan, while grounded in technical compliance, raises broader geopolitical questions. Analysts note that international financial institutions face increasing pressure to consider not just economic metrics but also governance and security dynamics when engaging with nations that are involved in regional conflicts.
Pakistan’s economic vulnerabilities, exacerbated by high external debt, energy shortages, and political instability, make IMF support crucial for short-term solvency. However, the effectiveness of such support will depend on the country’s willingness and ability to undertake deep structural reforms—especially in the context of civil-military relations, fiscal management, and cross-border security concerns.
For its part, the IMF has reiterated its neutrality in geopolitical disputes but acknowledged the risk posed by regional instability. “We remain committed to supporting Pakistan’s reform agenda while urging all parties to pursue peace and cooperation for sustainable development in South Asia,” Kozack concluded.
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