JUST TWO DAYS before its board met on May 9 in Washington DC to approve a $2.4 billion facility to Pakistan, the International Monetary Fund (IMF) staff had flagged “reputational risks” over perceived misuse of its lending and the increase in “enterprise risks” due to rising tensions with India.
In the Supplementary Information docket prepared on May 7 for the IMF board, the Fund’s Middle East and Central Asia department said, “The rising tensions between India and Pakistan, if sustained or deteriorate further, could heighten enterprise risks to the fiscal, external and reform goals of the program.”
It said that “reputational risks” could come from any “perceived lack of even-handed” or “perceived misuse of Fund disbursements”. “Careful Fund communication will be essential to underscore the Fund’s neutral role and avoid misperceptions about its lending activities,” the docket on Supplementary Information said.
India had abstained from voting in the board meeting as it raised concerns over the efficacy of IMF programs for Pakistan given its “poor track record” and also on the possibility of “misuse of debt financing funds for state-sponsored cross-border terrorism”, according to the May 9 official statement by the Ministry of Finance. Before the meeting, India’s Foreign Secretary Vikram Misri had said that the Fund’s Board should look “deep within” and take into account the facts before generously bailing out the country.
The IMF released the report, including the Supplementary Information docket, a day after Defence Minister Rajnath Singh had said that in current times, any financial assistance to Pakistan is no less than terror funding. “I believe that a big chunk of $1 billion coming from the IMF will certainly be utilised to fund terror infrastructure. Can this (funding from) IMF, which is an international organisation, not be considered an indirect funding? I want to put this question before the people of the world,” he said while addressing military personnel in Bhuj.
In the Supplementary Information, the Fund staff noted that as mitigants, the Pakistani authorities reiterated their strong commitment to the program, which was designed by the IMF to help restore economic stability, build resilience through stronger reserve buffers, and advance reforms to create stronger and inclusive growth.
The 11 new structural benchmarks introduced by the Fund have been linked to fiscal, governance, social, monetary and financial parameters along with metrics to be met in energy sector and trade, investment policy and deregulation.
The Supplementary Information had also said that tensions between Pakistan and India have risen significantly over the past two weeks after the April 22, 2025 attacks. Prepared just around the onset of Operation Sindoor by India, it said, “So far, the market reaction has been modest with the stock market retaining most of its recent gains and spreads widening moderately.”
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As part of its nod for two loan tranches worth $2.4 billion on May 9 for Pakistan, IMF has introduced 11 new structural benchmarks, including parliamentary approval of budget in line with the loan facility, publishing a governance action plan, and notifications of electricity tariff rebasing and gas tariff adjustments, to be met by the country before its next review of the Extended Fund Facility (EFF) in September.
The IMF is financing a $7-billion aid package to Islamabad that was approved in September 2024. The ongoing 37-month long EFF program of the IMF consists of six reviews over the span of the bailout.
In its report released Saturday, the Fund sought to clarify that disbursements under the EFF are dedicated to build reserves, adding the facility’s fiscal and reserve goals (including floors on social spending) limit the space for non-priority spending and the use of reserves to finance imports. The supplementary docket has incorporated updates on recent economic developments and the program performance. The Fund, however said, it does not alter the thrust of the staff appraisal.
The 11 new structural benchmarks introduced by the Fund have been linked to fiscal, governance, social, monetary and financial parameters along with metrics to be met in energy sector and trade, investment policy and deregulation. As per the new norms, Pakistan will be required to ensure achievement of fiscal objectives such as parliamentary approval of FY26 budget in line with IMF staff agreement to meet program targets by end-June 2025.
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On May 9, the Executive Board of the IMF had completed the first review of Pakistan’s economic reform program supported by the EFF arrangement, allowing for an immediate disbursement of around $1 billion, bringing total disbursements under the arrangement to about $2.1 billion. In addition, the IMF Executive Board had approved a tranche of $1.4 billion under the Resilience and Sustainability Facility (RSF).