IMF defends Pakistan bailout, rejects Indian objections

• Says disbursement not used for military or budget.
• Structural reforms and safeguards in place.
• Conflict impact noted; peace urged.

The International Monetary Fund (IMF) on Thursday defended its recent disbursement to Pakistan under the Extended Fund Facility (EFF), rejecting Indian concerns that the bailout could be misused by Islamabad.

The IMF executive board approved on May 9 a fresh $1.4 billion loan to Pakistan under its climate resilience fund and approved the first review of its $7 billion programme, freeing about $1 billion in cash. 

Addressing a presser, the IMF spokesperson Julie Kozack said, "Board approved the disbursement after finding that Pakistan had met all performance targets and made progress on structural reforms."

She stressed that IMF funds are intended solely to address balance of payments issues and are channelled to the central bank, not used for budget financing or military purposes.

“There are also strict safeguards in place,” Kozack said, pointing to conditionalities including a zero limit on central bank lending to the government and a focus on strengthening fiscal management.

Responding to questions about India’s objection and the removal of its executive director from the Fund, Kozack declined to comment, saying such appointments are the prerogative of individual member states.

India had asked the IMF for a broader review of its loans to Pakistan, as tension builds between the nuclear-armed neighbours.

An April attack on tourists in Indian Illegally Occupied Jammu and Kashmir (IIOJK) killed 26 and triggered the worst fighting between Pakistan and India in nearly three decades.

At the end of her briefing, Kozack expressed condolences for the lives lost in recent tensions between Pakistan and India and called for a peaceful resolution.

The May 9 review approval brings disbursements to $2 billion within the $7 billion program. No fresh money from the resilience loan was made immediately available. 

"Pakistan’s policy efforts under the (programme) have already delivered significant progress in stabilising the economy and rebuilding confidence, amidst a challenging global environment," the IMF said in a statement following the approval.

Meanwhile, a top government source in New Delhi told Reuters on Friday that India would push the Financial Action Task Force (FATF), a global financial crime watchdog, to add arch-rival Pakistan back to its "grey list" and oppose upcoming World Bank funding to Islamabad.

The source said India would not miss any opportunity "in opposing Pakistan and the next one is funding by World Bank, and we will raise our protest there too."

Pakistan's finance ministry did not immediately respond to a request for comment. Pakistan has denied any hand in the Kashmir attack and has said India's move of keeping the Indus Waters Treaty in abeyance is an act of war.

Pakistan was taken off the FATF grey list in 2022, giving it a clean bill of health on terrorist financing and boosting its reputation among lenders, essential for Pakistan's crisis-hit economy.