India Cautions IMF On Pakistan Bailout, Flags Potential Misuse Of Funds For Terror

India on Friday questioned the efficacy of bailout programs for Pakistan at a meeting of the International Monetary Fund, flagging the potential misuse of funds for military and state-sponsored terrorist purposes.

The multilateral lender reviewed the Extended Fund Facility lending program worth $1 billion and also considered a fresh Resilience and Sustainability Facility lending program worth $1.3 billion for Pakistan.

India abstained from the vote on the bailout proposal and the agency took note of New Delhi's objections.

"As an active and responsible member country, India raised concerns over the efficacy of IMF programs in case of Pakistan given its poor track record, and also on the possibility of misuse of debt financing funds for state sponsored cross border terrorism," the government said in a statement.

India highlighted Islamabad's poor track record in implementation and adherence to the IMF’s program conditions and thereby calling into question the effectiveness of repeated bailouts.

"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," the statement said.

Moreover, as a result of repeated bailouts, Pakistan’s high debt burden paradoxically makes it a too big to fail debtor for the IMF, India argued.

The country warned 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".

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 said.

India highlighted Pakistani military’s "deeply entrenched interference" in economic affairs that risks policy slippages and reversal of IMF-mandated 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," the statement said, alluding to the fact that Pakistan has been under direct or indirect military control for most of its existence.

"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," it said.

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.