India Fury as IMF Greenlights £750m Pakistan Loan Amid Conflict

Islamabad has received a significant financial boost as the International Monetary Fund (IMF) approved the release of approximately $1 billion (£750 million) to Pakistan. This decision, made at an IMF executive board meeting on Friday, has ignited diplomatic tensions, with India lodging a strong protest amidst a dangerously escalating military conflict between the two nuclear-armed neighbours.

The approved funds are part of a larger $7 billion (£5.3 billion) Extended Fund Facility agreed upon by the IMF and Pakistan last year. This multi-year loan program is designed to bolster Pakistan's struggling economy by enforcing fiscal discipline, tightening monetary policy, and implementing crucial structural reforms. The IMF also approved a separate $1.4 billion (£1 billion) Resilience and Sustainability Trust loan aimed at enhancing Pakistan's capacity to withstand climate shocks, although these funds have not yet been disbursed. This resilience fund targets improvements in water management, disaster response coordination, climate mitigation efforts, financial sector transparency regarding climate risks, and public investment processes.

Despite the backdrop of heightened regional instability, the IMF lauded Pakistan's adherence to the agreed policy measures under the Extended Fund Facility, stating that these efforts had "already delivered significant progress in stabilising the economy and rebuilding confidence amidst a challenging global environment." The IMF highlighted Pakistan's achievement of a primary budget surplus of 2% of GDP in the first half of the financial year and the notable drop in inflation to a historic low of 0.3% in April. Furthermore, Pakistan's foreign reserves saw a positive trend, rising to $10.3 billion (£7.7 billion) by the end of April, up from $9.4 billion (£7 billion) in August 2024.

Nigel Clarke, chair of the IMF board, acknowledged Pakistan's progress in restoring macroeconomic stability but cautioned that "risks to the outlook remain elevated" due to ongoing geopolitical tensions and inherent domestic vulnerabilities. He stressed the critical need for Pakistan to maintain a tight monetary policy, push forward with the reform of public enterprises, and strengthen its tax collection mechanisms, particularly in traditionally undertaxed sectors like agriculture.

However, the IMF's decision has triggered a sharp reaction from India. New Delhi abstained from voting on the loan and voiced strong concerns during the board meeting about the potential misuse of IMF funds by Pakistan, particularly in the context of the current military conflict. The Indian finance ministry issued a statement warning of the "possibility of misuse of debt-financing funds for state-sponsored cross-border terrorism," alluding to Pakistan's past borrowing history and its alleged support for militant activities in Kashmir.

India's statement referenced the ongoing military escalation, which was sparked by Indian missile strikes on alleged "terror camps" within Pakistan earlier this week. India claims these airstrikes were a direct retaliation for a terror attack in Kashmir on April 22 that resulted in the deaths of 26 people, primarily Hindu tourists. New Delhi maintains that Islamabad was complicit in the attack, aligning with its long-standing accusation of Pakistan's backing of militant separatism in Kashmir, the disputed Himalayan territory that both nations control in part but claim in its entirety.

The Indian finance ministry further pointed out that Pakistan has been a frequent recipient of IMF loans, having accessed funding in 28 of the past 35 years, including four programs since 2019. This track record, according to India, raises serious questions about the IMF's oversight and the effectiveness of its previous interventions. "Had the previous programmes succeeded," the ministry argued, "Pakistan would not have approached the fund for yet another bailout programme."

In response, Pakistani Prime Minister Shehbaz Sharif vehemently refuted India's accusations, stating that India's attempts to "sabotage the IMF programme" for his country had failed. The latest disbursement brings the total amount received by Pakistan under the current loan program to $2.1 billion (£1.6 billion), providing crucial financial support amidst a volatile regional climate.

IMF approves £750m loan for Pakistan despite escalating India conflict. New Delhi protests potential misuse amid Kashmir tensions.