India-Pakistan tension: The International Monetary Fund (IMF) has defended its recent decision to disburse $1 billion to Pakistan under its Extended Fund Facility (EFF), asserting that Islamabad had met all programme conditions and targets. The IMF’s statement follows India’s strong objections, warning that such funding could be misused to support state-sponsored terrorism and military activities.

What IMF said on fund release?

During a press briefing on Thursday, IMF Director of Communications Julie Kozack clarified that the May 9 decision by the IMF Executive Board was based on Pakistan’s “progress on key reforms” and adherence to the bailout program’s conditions. “In general, Fund Board decisions are taken by consensus,” she noted, confirming there was “sufficient consensus” to proceed with Pakistan’s review and the resulting disbursement.

The IMF’s current 37-month EFF programme with Pakistan, approved in September 2024, is worth $7 billion in total. The $1 billion tranche, released earlier this month, came after the Fund’s staff reached a Staff-Level Agreement with Pakistani authorities in March, which was then endorsed by the Board on May 9.

India’s objection to IMF funds for Pakistan

India abstained from the IMF vote, citing Pakistan’s history of allegedly misusing international funds to support terror operations. In the lead-up to the vote, Indian Foreign Secretary Vikram Misri urged the Fund to examine Pakistan’s record and consider the “reputational risk” of financing a country facing serious allegations of sponsoring terrorism. Defence Minister Rajnath Singh went further, stating that such financial support could amount to “terror funding.”

These concerns gained momentum following Indian airstrikes on nine terror sites in Pakistan and Pakistan-occupied Kashmir on May 7–8, a response to an earlier terror attack in Pahalgam, Jammu and Kashmir, that killed 22 people.

IMF addresses safeguards

Kozack outlined three primary safeguards built into the IMF’s funding structure to prevent misuse:

  1. Balance of Payments Support Only: IMF funds are strictly for resolving balance of payments crises and are not intended for budgetary or military use.
  2. Central Bank Allocation: The disbursements go directly to Pakistan’s central bank reserves, not to the government treasury, which limits their use for defense or other unrelated expenditures.
  3. Conditionality Framework: The programme includes strict conditions such as limits on central bank lending to the government, benchmarks on international reserves, and requirements to improve fiscal governance.

Any deviation from these conditions, Kozack warned, would affect Pakistan’s future access to the funds.

What are the new IMF structural reforms for Pakistan?

The IMF has introduced 11 new structural benchmarks for Pakistan, targeting improvements in fiscal policy, governance, social protections, energy sector reform, and deregulation of trade and investment.

On the India-Pakistan conflict, Kozack offered sympathies for the loss of life and expressed the IMF’s hope for a peaceful resolution between the two countries. “We do hope for a peaceful resolution of the conflict,” she said.