Why India could not stop IMF bailout to Pakistan

Yahoo

15-05-2025

Last week the International Monetary Fund (IMF) approved a $1bn (£756m) bailout to Pakistan – a move that drew sharp disapproval from India as military hostilities between the nuclear-armed neighbours flared, before a US-led ceasefire was unexpectedly declared.
Despite India's protests, the IMF board approved the second instalment of a $7bn loan, saying Islamabad had demonstrated strong programme implementation leading to a continuing economic recovery in Pakistan.
It also said the fund would continue to support Pakistan's efforts in building economic resilience to "climate vulnerabilities and natural disasters", providing further access of around $1.4bn in funding in the future.
In a strongly worded statement India raised concerns over the decision, citing two reasons.
Delhi questioned the "efficacy" of such bailouts or the lack thereof, given Pakistan's "poor track record" in implementing reform measures. But more importantly it flagged the possibility of these funds being used for "state-sponsored cross-border terrorism" – a charge Islamabad has repeatedly denied - and said the IMF was exposing itself and its donors to "reputational risks" and making a "mockery of global values".
The IMF did not respond to the BBC's request for a comment on the Indian stance.
Even Pakistani experts argue that there's some merit to Delhi's first argument. Pakistan has been prone to persistently seeking the IMF's help – getting bailed out 24 times since 1958 – without undertaking meaningful reforms to improve public governance.
"Going to the IMF is like going to the ICU [intensive care unit]. If a patient goes 24 or 25 times to the ICU then there are structural challenges and concerns that need to be dealt with," Hussain Haqqani, former Pakistani ambassador to the US, told the BBC.
But addressing Delhi's other concerns – that the IMF was "rewarding continued sponsorship of cross-border terrorism" thereby sending a "dangerous message to the global community" – is far more complex, and perhaps explains why India wasn't able to exert pressure to stall the bailout.
India's decision to try to prevent the next tranche of the bailout to Islamabad was more about optics then, rather than a desire for any tangible outcome, say experts. As per the country's own observations, the fund had limited ability to do something about the loan, and was "circumscribed by procedural and technical formalities".
As one of the 25 members of the IMF board, India's influence at the fund is limited. It represents a four-country group including Sri Lanka, Bangladesh and Bhutan. Pakistan is part of the Central Asia group, represented by Iran.
Unlike the United Nations' one-country-one-vote system, the voting rights of IMF board members are based on a country's economic size and its contributions – a system which has increasingly faced criticism for favouring richer Western countries over developing economies.
For example, the US has the biggest voting share - at 16.49% - while India holds just 2.6%. Besides, IMF rules do not allow for a vote against a proposal - board members can either vote in favour or abstain – and the decisions are made by consensus on the board.
"This shows how vested interests of powerful countries can influence decisions," an economist who didn't want to speak on the record told the BBC.
Addressing this imbalance was a key proposal in the reforms mooted for the IMF and other multilateral lenders during India's G20 presidency in 2023.
In their report, former Indian bureaucrat NK Singh and former US treasury secretary Lawrence Summers recommended breaking the link between IMF voting rights and financial contributions to ensure fairer representation for both the "Global North" and the "Global South". But there has been no progress so far on implementing these recommendations.
Furthermore, recent changes in the IMF's own rules about funding countries in conflict add more complexity to the issue. A $15.6bn loan by the fund to Ukraine in 2023 was the first of its kind by the IMF to a country at war.
"It bent its own rules to give an enormous lending package to Ukraine - which means it cannot use that excuse to shut down an already-arranged loan to Pakistan," Mihir Sharma of the Observer Research Foundation (ORF) think tank in Delhi told the BBC.
If India really wants to address its grievances, the right forum to present them would be the United Nations FATF (Financial Action Task Force), says Mr Haqqani.
The FATF looks at issues of combating terror finance and decides whether countries need to be placed on grey or black lists that prevent them from accessing funds from bodies like the IMF or the World Bank.
"Grandstanding at the IMF cannot and did not work," said Mr Haqqani. "If a country is on that [FATF] list it will then face challenges in getting a loan from the IMF – as has happened with Pakistan earlier."
As things stand though, Pakistan was officially removed from the Financial Action Task Force (FATF) grey list in 2022.
Separately, experts also caution that India's calls to overhaul the IMF's funding processes and veto powers could be a double-edged sword.
Such reforms "would inevitably give Beijing [rather than Delhi] more power", said Mr Sharma.
Mr Haqqani agrees. India should be wary of using "bilateral disputes at multilateral fora", he said, adding that India has historically been at the receiving end of being vetoed out by China in such places.
He points to instances of Beijing blocking ADB (Asian Development Bank) loans sought by India for the north-eastern state of Arunachal Pradesh, citing border disputes between the two countries in the region.
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