India watching Pak federal budget closely, to flag any breach of IMF aid terms
New Delhi: When Pakistan's finance minister Muhammad Aurangzeb presents the country's FY26 federal budget on Tuesday, top officials sitting in New Delhi will scout for a key figure —defence spending —according to two persons privy to the situation.
New Delhi's concern is about where the money is coming from – will international aid to Pakistan, given for specific, targeted projects actually go into the stated purpose of economic reforms and climate resilience or will it be diverted to the military?
As part of a $2.4 billion financial aid approved last month by the International Monetary Fund (IMF), Islamabad has committed to preparing its FY26 budget 'in close consultation with the Fund".
This condition, said one of the persons quoted above, is usually reserved for bail-out packages for far more serious financial crises, but has been applied in the case of Pakistan despite the funding being tailored for specific projects.
Coming against the backdrop of the recent India-Pakistan conflict, this enables greater multilateral oversight of the country's resource management, the person said requesting anonymity.
IMF documents will show Pakistan's commitments and trajectory for major revenue receipts and spending targets, including defence. 'If we see any discrepancies, we can take it up with IMF,' said the second person, who also asked not to be named.
Information available from the IMF, based on Pakistani authorities and IMF staff estimates and projections, showed Islamabad's defence spending is estimated to have risen from ₹ 1.2 trillion Pakistani rupees in FY20 to over ₹ 2.1 trillion in FY25 although as a share of GDP, it declined from 2.6% to 1.9% during the period.
Queries emailed on Thursday to the IMF and to the finance and external affairs ministries on Friday seeking comments for the story remained unanswered at the time of publishing.
Experts pointed to the need for close oversight of how Pakistan uses international aid.
'India has to work closely with the countries contributing to the resources of international and multilateral organizations to ensure that either funding is not extended to Pakistan or if done, stricter terms are attached to it and some kind of international monitoring is included. Ensuring usage of funds for stated objectives takes close oversight,' said Maj Gen (Dr) Ashok Kumar, VSM, Director General of Centre for Joint Warfare Studies, an autonomous think-tank.
'Pakistan tends to hype up its security needs as existential threats in order to justify significant defence allocations. China has a vested interest here as Pakistan imports about 80% of its military hardware from China, and is the largest importer of military equipment from China. I see the situation changing only when there is real democracy in Pakistan, which can drive its agenda towards economic development,' said Kumar.
According to the Stockholm International Peace Research Institute, Pakistan was the top arms importer from China in 2020-24, swallowing up 63% of Beijing's exports.
'We have never attacked Pakistan, we have only responded decisively,' added Kumar.
Despite India's protests, the IMF on 9 May, cleared immediate disbursal of $1 billion to Pakistan for economic reforms under a package approved last year and another $1.4 billion to reduce vulnerabilities to natural disasters. It said the country has 'delivered significant progress in stabilizing the economy' and made 'important progress in restoring macroeconomic stability despite a challenging environment.'
In a strongly worded statement on that day, India raised concerns over the efficacy of IMF programmes in Pakistan given the country's 'poor track record, and also on the possibility of misuse of debt financing funds for state sponsored cross-border terrorism.'
Pakistan's finance minister Muhammad Aurangzeb, a former international banker and former chief executive of JP Morgan's Global Corporate Bank for the Asia Pacific region, has said the recent military escalation with India will not have a large fiscal impact on Pakistan and could be managed within the current fiscal space, Reuters reported on 12 May.
India has also strongly objected to the Asian Development Bank's (ADB) decision to extend financial support to Pakistan, warning that the funds could be misused amid rising defence spending, Mint reported on 4 June, citing an official aware of the matter.
ADB on 3 June approved an $800-million programme to strengthen fiscal sustainability and improve public financial management in Pakistan. Pakistan's economy is estimated to have grown at 2.6% in FY25.
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