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IMF Approves $1B Loan to Pakistan, India Dissents

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IMF approves $1B loan for Pakistan

IMF Approves $1B Loan to Pakistan, India Dissents

On May 9, 2025, the International Monetary Fund (IMF) approved a significant financial package for Pakistan, including a $1 billion disbursement from its $7 billion Extended Fund Facility (EFF) program and a new $1.4 billion loan under the Resilience and Sustainability Facility (RSF). This development is a critical step for Pakistan, which has been grappling with economic instability, high inflation, and dwindling foreign reserves. However, the approval has sparked controversy, with India abstaining from the IMF board vote and raising concerns about Pakistan’s track record and potential misuse of funds.

Background: Pakistan’s Economic Challenges

Pakistan’s economy has faced significant challenges, including fiscal deficits, high inflation, and low foreign exchange reserves. External factors, such as geopolitical tensions and frequent natural disasters, have further strained the nation’s finances. The country has a long history with the IMF, receiving disbursements in 28 of the past 35 years, making it the IMF’s fifth-largest debtor as of May 2025. Notable past programs include a $9.78 billion Stand-By Arrangement in 2008, of which $6.7 billion was drawn.

The current $7 billion EFF program, approved on September 25, 2024, and set to run for 37 months, aims to address these issues through structural reforms. It follows four IMF programs in the last five years, raising questions about the effectiveness of such bailouts. The program is designed to stabilize the economy, rebuild investor confidence, and foster sustainable growth, but critics argue that Pakistan’s reliance on IMF funding has not led to lasting economic improvements.

Details of the IMF Loan

The recent IMF approval includes two key components:

Economic projections for FY2025 are optimistic, with real GDP growth expected at 2.6%, inflation at 5.1%, a primary balance (excluding grants) of 2.1% of GDP, gross reserves at $13,921 million, and a current account balance of -0.1% of GDP. These figures suggest early progress in stabilizing Pakistan’s economy.

Economic Indicator

FY2025 Projection

Real GDP Growth

 2.6%

Inflation (Average)

 5.1%

Primary Balance

2.1% of GDP

Gross Reserves

$13,921 million

Current Account

-0.1% of GDP

India’s Objections and Geopolitical Tensions

The IMF’s decision faced significant pushback from India, which abstained from voting and expressed “strong dissent.” India’s concerns include:

Congress MP Jairam Ramesh criticized India’s abstention, arguing for a “NO” vote, though IMF rules only allow voting in favor or abstaining. Foreign Secretary Vikram Misri urged the IMF to scrutinize Pakistan’s actions before approving further bailouts. These objections underscore the geopolitical complexities, particularly amid heightened India-Pakistan tensions linked to events like Operation Sindoor.

Impact on Pakistan’s Economy

The $1 billion EFF disbursement provides immediate liquidity to address Pakistan’s financial needs, while the RSF loan supports long-term climate resilience, crucial for a country prone to natural disasters. The IMF program has already shown results, with inflation dropping to a historic low of 0.3% in April 2025 and gross reserves rising to $10.3 billion, projected to reach $13.9 billion by June 2025. These funds are expected to bolster investor confidence, support reforms like tax base expansion and SOE restructuring, and enhance energy sector viability.

However, challenges remain. Pakistan must adhere to strict IMF conditions to ensure continued disbursements, and the country’s high debt levels and reliance on external financing raise concerns about long-term sustainability. The RSF’s focus on climate resilience is particularly relevant, as Pakistan faces increasing environmental risks that could derail economic progress.

International Reactions

Pakistan’s Prime Minister Shehbaz Sharif welcomed the IMF’s decision, calling it a “critical step toward financial stability” (India Today). However, the IMF itself has not issued an immediate comment, possibly due to the sensitive nature of India’s objections. Other member countries reportedly shared India’s concerns about fund misuse, though the approval proceeded, reflecting Pakistan’s strategic importance and the IMF’s commitment to preventing economic collapse.

Conclusion

The IMF’s approval of a $1 billion loan tranche and a $1.4 billion RSF for Pakistan marks a pivotal moment in the country’s economic recovery efforts. The funds aim to stabilize the economy, rebuild reserves, and address climate vulnerabilities, with early signs of progress in inflation and reserve growth. However, India’s dissent highlights significant geopolitical challenges, including concerns about Pakistan’s IMF track record and potential misuse of funds. As Pakistan navigates these reforms, the success of the EFF and RSF programs will depend on its commitment to structural changes and its ability to address international concerns. The global community will closely watch whether this latest IMF loan to Pakistan fosters sustainable growth or perpetuates a cycle of dependency.

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