ADB Approves $800 Million Bailout for Pakistan Despite India’s Strong Objections
The Asian Development Bank (ADB) on Tuesday approved an USD 800 million bailout package for Pakistan, aimed at strengthening its fiscal sustainability and public financial management, despite vehement objections raised by India. New Delhi has been actively urging global lenders to halt financial aid to Islamabad, citing its history of terror financing and concerns over the potential misuse of funds.
The approved package includes a USD 300 million policy-based loan and ADB’s first-ever policy-based guarantee of up to USD 500 million, which is expected to help Pakistan mobilise an additional USD 1 billion in financing from commercial banks. This development comes just a month after Pakistan secured a $1 billion tranche from the International Monetary Fund (IMF) under its Extended Fund Facility (EFF).
Government sources told that India had firmly objected to the ADB offering any financial aid to Pakistan. In its submissions, India highlighted serious concerns about the potential diversion of funds, especially given Pakistan’s declining tax revenue (from 13% of GDP in 2018 to 9.2% in 2023) juxtaposed with its rising defence spending.
India’s objections, particularly heightened after the April 22 Pahalgam terror attack, stressed that loans from international lenders might be channelled towards military expenses rather than crucial development and economic reforms. New Delhi pointed out Pakistan’s repeated failures to implement key economic reforms despite multiple loan programs from both the ADB and the IMF.
Furthermore, India underscored Pakistan’s weak governance structures and the significant role its military plays in economic affairs, notably through the Special Investment Facilitation Council (SIFC), which was set up in June 2023. India argued that this deepens the military’s economic involvement and poses risks of policy reversal and poor reform implementation.
A major point of contention for India remains Pakistan’s alleged support for cross-border terrorism and its failure to fully comply with key mandates of the Financial Action Task Force (FATF), including the crucial step of freezing assets of UN-designated terrorist groups. India has warned that these issues not only threaten regional peace but also significantly increase the ADB’s own risk exposure.
Following this ADB decision, India is now reportedly likely to intensify its efforts to get Pakistan back onto the FATF’s ‘grey list’. Such a move would subject Pakistan to increased international scrutiny of its financial transactions and could impact its access to global finance. Pakistan was removed from the FATF grey list in October 2022 after being on it for four years.
The ADB had reportedly postponed the approval of this financing package for five days at India’s request to evaluate the loan documents. However, the package was eventually approved on June 3. The ADB stated that the program supports far-reaching reforms to improve tax policy, administration, and compliance, while enhancing public expenditure and cash management in Pakistan, ultimately aiming to reduce its fiscal deficit and public debt
