The International Monetary Fund (IMF) Friday approved the immediate disbursal of $1 billion out of a total $7 billion Extended Fund Facility (EFF) to Pakistan. It also approved Pakistan’s request for another $1.4 billion, while India abstained from voting amid ongoing cross-border tensions with its neighbouring country.
In a statement issued on Friday, the Ministry of Finance (MoF) said that India raised concerns at the IMF vote over the efficacy of the Fund’s programmes in case of Pakistan, citing the latter’s “poor track record” and the “possibility of misuse of debt financing funds for state sponsored cross border terrorism”.
“India pointed out that rewarding continued sponsorship of cross-border terrorism sends a dangerous message to the global community, exposes funding agencies and donors to reputational risks, and makes a mockery of global values,” it added.
In September 2024, the Executive Board of IMF had approved a 37-month Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan for an amount of $7 billion. Friday’s IMF Executive Board vote pertained to the disbursement of $1 billion out of the amount. This facility involves a total of six reviews throughout the bailout.
In a statement issued on Friday, IMF confirmed that its Executive Board completed the first review of 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 has also approved the authorities’ request for an arrangement under the Resilience and Sustainability Facility (RSF), with access of about $1.4 billion.
The IMF provides financial support to countries hit by crises, creating a breathing room for them to adjust their policies to restore economic stability and growth.
How does the IMF help countries, how do countries take financial assistance from the IMF, and what does this assistance entail? ThePrint explains.
Pakistan and the IMF
According to the IMF website, Pakistan has had 25 arrangements with it since 1958, which averages to a financial arrangement almost every 2.5 years. It has been 5 such arrangements in the past five years alone. The IMF had then lent Pakistan SDR 25,000 (Special Drawing Rights) on a standby arrangement (SBA) basis. An SBA provides short-term financial assistance to countries facing balance of payments problems. An SBA has historically been an IMF lending instrument, most used by advanced and emerging market countries.
SDR is not a currency, but an international reserve asset created by the IMF in 1969. Its value is based on a basket of five currencies—the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. This asset can be exchanged for currency by holders. The value of SDR in terms of US dollars is determined daily based on the spot exchange rates observed at around noon London time. As of 9 May 2025, the value of 1 SDR is 1.357 US dollars.
However, under the 1958 arrangement, Pakistan did not withdraw any funds. Pakistan has opted for several of IMF’s lending facilities over the years, and as of 31 March 2025, its outstanding purchases and loans with the IMF stood at SDR 6229.52 million, which roughly amounts to $ 8,667 million.
On Friday, India pointed out that Pakistan has been a “prolonged borrower from the IMF, with a very poor track record of implementation and of adherence to the IMF’s program conditions”.
“In the 35 years since 1989, Pakistan has had disbursements from the IMF in 28 years. In the last 5 years, since 2019, there have been 4 IMF programs. Had the previous programs succeeded in putting in place a sound macro-economic policy environment, Pakistan would not have approached the Fund for yet another bail-out program,” the statement said, adding that “such a track record calls into question either the effectiveness of the IMF program designs in case of Pakistan or their monitoring or their implementation by Pakistan”.
When does IMF step in
The IMF provides countries with space to tweak their policies in times of crises, through financial assistance.
This crisis could be domestic, external, or both. According to the IMF website, domestic crises may include inappropriate fiscal and monetary policies, political instability, and weak institutions. External crises may include natural disasters.
The Covid-19 pandemic was such an external factor that led to the IMF stepping in to support its member countries.
And how does this funding happen?
To begin with, a member country can make a request to the IMF for financial assistance, after which, the IMF staff discusses its needs and economic condition with the country’s government. A staff-level agreement (SLA), which is an initial understanding, is then set up between the IMF staff and the country’s authorities.
For instance, for Pakistan’s September 2024 financial package, an IMF team held discussions with the country in Islamabad in May last year. Post this, a statement issued in July said that the Pakistani authorities and the IMF team had arrived at a staff-level agreement on a comprehensive programme that could be supported by a 37-month Extended Fund Arrangement (EFF) in the amount equivalent to SDR 5,320 million (or about $7 billion at the exchange rates then).
Also read: Neither strong Pakistan nor weak Pakistan is in India’s interests
How does the IMF take decisions
An SLA becomes final only after it is approved by the IMF Executive Board.
The policy programme agreed upon through the arrangement is presented to the IMF’s Executive Board in a “Letter of Intent” and detailed in a “Memorandum of Understanding.”
However, the voting power at the IMF is distinct from the United Nations General Assembly, where every country has one vote. At the IMF, the voting power of every member country reflects its “relative economic position”, according to the IMF website. This vote calculation depends on a member’s “quota”, which is determined by a formula used to assess members’ relative position in the world economy.
India currently holds a vote share of 2.63 per cent at the IMF, while the US holds 16.49 per cent, China holds 6.08 per cent, and Pakistan holds 0.43 per cent. The combined vote share for the India, Bangladesh, Bhutan, and Sri Lanka grouping, which is represented by one Director at the IMF, collectively is only 3.05 per cent.
The IMF executive board comprises 25 Directors, who are elected by member countries or by groups of countries, and the Managing Director, who serves as its Chairman. However, this Board usually takes decisions based on “consensus”, which means that it usually attempts to reach an agreement instead of resorting to a formal vote.
Most decisions of the Fund are made by a majority of the votes cast. However, it does need 85 per cent of the majority of the total voting power for certain decisions, giving the US a virtual veto with its over 16 per cent voting power.
“The speeches are only meant to put certain things on record…Everybody expresses their views, and in the end, they’ll say, we support this loan,” an economist, on the condition of anonymity, said.
India’s statement issued on Friday said that the IMF took note of India’s statements and its abstention from the vote.
Explaining India’s abstention, BJP leader Amit Malviya also posted on X, claiming that while the IMF typically makes decisions by consensus, “in cases where a vote is required, the system does not allow a formal ‘no’ vote. Directors can either vote in favour or abstain. There is no provision to vote against a loan or proposal.” Therefore, he wrote that by abstaining, India conveyed “strong dissent within the constraints of the IMF’s voting system and formally recorded its objections”.
What are the strings attached
The IMF usually attaches conditions to its financial assistance. These conditions, it says, are policy adjustments that help a country solve its economic or financial crisis.
The lending arrangements require the members to adhere to specific conditions and can continue to draw upon the arrangement, subject to periodic reviews. However, experts have often criticised the IMF, alleging that the political significance of a country becomes a contributing factor to the stringency of conditions accompanied by an IMF bailout.
The conditions are also meant to ensure that the country’s finances bounce back to be able to return the IMF’s loan.
These policy adjustments that amount to conditionalities could include certain prior actions that the country agrees to take before the IMF approves financing or completes a review. The policy commitments can also take the form of quantitative performance criteria like a ceiling on external debt or new public guarantees, indicative targets like a ceiling on domestic arrears, and structural benchmarks like strengthening tax administration and improving the rule of law in the country.
And what happens if a country misses these targets?
As per the IMF website, if a country misses a quantitative performance criteria condition, the IMF Executive Board may authorise a waiver of the condition if it is satisfied that the programme may still succeed. As for structural benchmarks and indicative targets, missing these does not need waivers, but they are assessed in the context of overall programme performance.
Conditionalities on Pakistan
For Pakistan, a table attached to the Letter of Intent for the 2024 package lists down the quantitative performance criteria as well as indicative targets for FY-2024/25.
It also mentioned structural conditionalities for Pakistan, which included prior actions needed for programme approval. For this, Pakistan had to have parliamentary approval of a FY25 budget in line with the IMF staff agreement to meet programme targets, and notifications related to annual electricity tariff rebasing, and semiannual gas tariff adjustments. These conditions were marked fulfilled.
The Letter of Intent mentions several structural benchmarks on fiscal policies, governance, the energy sector, state-owned enterprises, and investment policy.
For instance, it proposes amending the Civil Servants Act to ensure that high-level public officials digitally file asset declarations—including assets beneficially owned by them and their family members—with sufficient safeguards for personal privacy. These disclosures would be made publicly accessible and verified through a robust framework for risk-based verification by a single authority. The document also mentions publication of a full Governance and Corruption Diagnostic Assessment report.
(Edited by Ratan Priya)