I. Introduction
The seventh Could, 2025 noticed the beginning of a short however tense armed battle between India and Pakistan. Its quick set off was the conduction of ‘Operation Sindoor’ by India during which it focused 9 terrorist basecamps located in Pakistan. This Operation was in retaliation for the terrorist assault in Pahalgam, Kashmir on 22 April, 2025 during which 26 vacationers (25 Indian nationals and 1 Nepali nationwide) have been killed. The Resistance Entrance (TRF) working from Pakistan claimed accountability for the assault. Subsequently, the bordering nations engaged in a number of exchanges by means of drones and airstrikes which got here to an finish by a ceasefire reached on 10 Could, 2025.
Amidst heightened tensions, the Worldwide Financial Fund (IMF) on 9 Could, 2025 sanctioned the quick disbursement of 1 billion USD to Pakistan beneath the Prolonged Fund Facility (EFF) association for help in restoring “macroeconomic stability.” One other 1.4 billion USD have been sanctioned beneath the Resilience and Sustainability Fund (RSF) for “local weather resilience.” When information of this bailout reached Indian plenty, social media erupted with folks claiming that the IMF mortgage primarily “reimburses” Pakistan for its assaults on Indian cities.
This weblog is an try to clear the air surrounding the IMF bailout. It analyses the veracity of arguments raised by India towards the grant of this fund, and it argues that this bailout has revealed cracks within the IMF’s AML/CFT coverage and in its dealings with nations like Pakistan which have recognized affiliations with terrorist organisations and important army interference in governance, which warrant the worldwide fund’s severe consideration.
II. How the IMF grants funds and screens their progress
The Government Board, comprising of 25 Administrators representing member states, takes care of the day-to-day functioning of the IMF, such because the grant of loans and their periodic overview. Choices are normally taken by consensus but when that fails, the proposal at-hand is put to vote. The voting energy a member state enjoys is proportionate to their quota, i.e., the quantity of funds they’ve invested into the IMF.
The grant of a mortgage is coupled with a set of coverage situations a member state should adjust to to enhance its funds. This is called coverage conditionality, and the extent of coverage adjustments a state must undertake relies upon upon the kind of mortgage instrument used. As an example, a Stand-By Settlement (SBA) being a shorter-term mortgage carries with it much less stringent coverage situations. Alternatively, an EFF entails longer programme engagement with a sustained dedication in the direction of ‘structural reforms.’ The IMF undertakes periodic critiques of the progress made in the direction of the prescribed coverage situations, and the mortgage quantity is accordingly disbursed in phases.
III. Issues raised by India towards the bailout
Earlier than delving into the broader flaws marring the IMF’s functioning, it is very important think about India’s stance on the Could 9 bailout as this incident has served as a focus in revealing these flaws. Within the IMF Government Board proceedings previous the affirmation of the bailout, India abstained from casting a vote and raised the next considerations: firstly, that Pakistan has displayed a “poor track-record” in repaying IMF-sanctioned loans; secondly, that Pakistan has persistently funded cross-border terrorism and harboured terrorist organisations; and thirdly, that the army performs a lead-role within the financial affairs of Pakistan which makes their dedication in the direction of reimbursement of loans doubtful. The next sections include a breakdown of the veracity of every of those considerations and the concomitant revelation of the IMF’s systemic flaws.
A. Poor track-record of Pakistan in repaying IMF-sanctioned loans
Pakistan has discovered itself cash-strapped on a number of events because it grew to become a member of the IMF. To this point, it has entered into 25 preparations with the IMF, with a present excellent debt of 6.6 billion USD (approx.), making it the fourth-largest debtor of the worldwide fund.
Moreover, Pakistan’s compliance with the prescribed coverage situations through the years has been inconsistent to say the least. An SBA sanctioned in November 2008 was prolonged because the nation failed to make the requisite coverage adjustments on time. A 3 billion USD EFF programme sanctioned in 2019 was stalled when the periodic overview revealed that essential indicators weren’t met with. The most recent 2024 EFF programme beneath which the 9 Could bailout has been sanctioned confronted troubles when a overview was carried out.
Evidently the nation is caught in a cycle of borrowing after which failing to fulfil the corresponding coverage situations. The IMF ought to think about trying into a few of the not-so-apparent components which have made Pakistan a persistent borrower. The next sub-sections supply a proof for a few of these components.
B. Pakistan harbouring terrorist teams/supporting terror-financing & IMF’s lacklustre AML/CFT coverage
The IMF being a world lending establishment should uphold an unwavering dedication in the direction of accountable lending. A vital corollary of this dedication is heightened vigilance in transactions with states like Pakistan which share an uncommon affinity with terrorist organisations.
Earlier than going right into a critique of the IMF’s Anti-Cash Laundering and Countering Financing of Terrorism coverage (AML/CFT coverage), right here’s a succinct presentation of proof which showcases Pakistan’s hand in glove strategy with terrorist organisations. The Lashkar-e-Taiba (LeT), a world terrorist organisation, has been termed as a “favored ward” of Pakistan. Former President Pervez Musharraf admitted that Pakistan “supported, educated” the LeT to hold out militancy in Kashmir within the Nineteen Nineties. Extra not too long ago, a few of the LeT terrorists who have been killed in Operation Sindoor, got a state-funeral. Pictures circulated on the web confirmed Hafiz Abdur Rauf, a US designated terrorist and a senior member of the LeT, was in attendance with a number of senior Military-officials within the background. Even previous to this weird incident, former Prime Minister Nawaz Sharif admitted in a 2018 interview that the Pakistani state had a hand within the notorious 2008 Mumbai terror assaults by the LeT. The nation’s function within the Taliban’s rise to energy in Afghanistan by means of funding and different assist has additionally been delivered to mild.
Pakistan’s persistent financing of terrorism can also be backed with replete proof. The nation has been on the Monetary Motion Job Drive’s (FATF’s) grey-list thrice: from 2008 to 2009, from 2012 to 2015 after which once more from 2018 to 2022. A 2024 high-level committee report of the Indian Ministry of Exterior Affairs said “terrorist outfits are supplied secure havens, materials assist, finance and different logistics by Pakistan’s ISI to hold out terrorist actions in India.”
These details make it patently clear that whereas partaking in transactions with a state like Pakistan that harbours/helps terrorist organisations, the IMF must be as circumspect as potential as a consequence of a really actual risk of funds being utilised for terror-financing. However its dealing with of the Could 9 bailout exhibits in any other case. Virtually per week after the bailout was sanctioned, the IMF imposed 11 new situations upon Pakistan stating that “rising tensions between India and Pakistan might heighten dangers to the … targets of the programme.” That is removed from an categorical acknowledgement of potential misuse of funds for illicit functions however it’s nonetheless a welcome transfer; although for causes unbeknownst, this issue didn’t discover a point out within the issues earlier than the bailout.
Consequently, this bailout has revealed the IMF’s lacklustre (AML/CFT coverage). There’s a must introduce a pre-facto (earlier than granting of a mortgage) evaluation of siphoning of funds in the direction of illicit actions along with post-facto periodic assessments.Furthermore, presently AML/CFT measures deal with serving to member states strengthen their AML/CFT authorized frameworks and never on assessing whether or not the states themselves are misusing funds for sponsoring terrorism. That is partly as a result of the IMF depends upon and works intently with state companies to make sure compliance with coverage conditionalities and to trace utilization of funds. However in a rustic like Pakistan, the place state companies are themselves in cahoots with terrorist organisations, unbiased pre-facto surveillance measures have to be launched. What is probably extra regarding is that the IMF usually granted funds to Pakistan even whereas it was within the FATF’s gray record (in 2008-09, 2012-15 and 2018-22), with none recognized elevated situations or surveillance. Allowing for the horrific penalties that terror-financing has, these chinks within the IMF’s AML/CFT coverage are regarding to say the least.
Measures like unbiased pre-facto surveillance of diversion of funds in the direction of terror-financing and elevated cooperation with the FATF have to be integrated. And these measures ought to increase to loans granted to any state with a recognized historical past of harbouring terrorist organisations.
C. Affect of army over the Pakistani authorities & IMF’s strategy in coping with army regimes
The Pakistani authorities is thought to largely work beneath the route of the army. It has been termed as a “tutelary democracy” the place although the federal government is democratically elected, the army workout routines immense energy over governance. This affect, although within the early levels restricted to defence and overseas coverage, has now began seeping into the financial affairs of the nation. A 2021 report by the UN, which was cited by India whereas voicing its protest towards the 9 Could bailout, states that “in impact, the army institution has emerged as a considerably parallel construction to Pakistan’s civil governance establishments.”
The IMF has been cautious of granting loans to army managed regimes up to now. A living proof is Myanmar. When the junta took over the elected authorities, the IMF severely thought of the taking-back of emergency funds launched for the COVID-19 pandemic as a consequence of considerations that the funds could be mis-utilised by the junta. Equally, in its dealings with Pakistan, the IMF wants to present severe weight to how funds are being held and utilised by the army in financing their operations and potential assaults on India; the funds which ought to ideally be utilised for strengthening the economic system.
IV. Conclusion: Might the IMF have dealt with the 9 Could bailout in another way?
The Could 9 bailout sanctioned on the peak of India-Pakistan skirmishes has delivered to the entrance some systemic flaws within the IMF’s functioning. No fingers are being raised towards the IMF’s energy to grant this bailout, however what have to be thought of by the worldwide fund is a reconfiguration of its AML/CFT coverage. The Could 9 bailout, although purportedly to additional the aim of “financial restoration”, will need to have been coupled with rigorous on-ground checks into how the funds have been/are being utilised. Turning a blind eye in the direction of urgent considerations like confirmed affiliations with terrorist organisations and a dominant army was certainly not the way in which to go, much more so in mild of the Pahalgam terror assault and an ongoing armed change between the nations. It’s subsequently crucial that the IMF considers bringing in a lot wanted adjustments, comparable to these alongside the traces of the solutions posited on this article.
Arjun Sagar is a fifth-year scholar at College Institute of Authorized Research (UILS), Panjab College, Chandigarh.
Image Credit score: AP/TheHindu
