After diplomatic push, India aims for economic isolation of Pakistan

Despite India’s strong objections, the International Monetary Fund (IMF) had given a loan of $1 billion to Pakistan as it fulfilled all conditions related to the project. India will again oppose Pakistan from acquiring more funds from the World Bank by preparing a strong case with the Financial Action Task Force (FATF), which is scheduled to meet in a few weeks.

Although the processes of a nation getting loans from the IMF and it being penalised by the FATF—for its acts of omissions and commissions—differ widely, India will go whole hog in building a strong case against Pakistan, citing Islamabad's support for funding terror infrastructure.

In 2022, Pakistan was removed from the FATF as it had promised to bring in laws related to money laundering, but still, sufficient progress has not been made. Earlier in 2018, Pakistan was placed in the FATF's grey list.

In a strong message delivered at a rally in Rajasthan, PM Narendra Modi had promised that Pakistan would pay dearly for every terror attack.

In that regard, the Indian government is expected to further strengthen its efforts to isolate Islamabad at the international front, particularly with the financial bodies. 

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Currently, strong diplomatic efforts are underway, as all-party delegations are interacting with governments across the world to highlight Pakistan’s role in terrorism.

However, Opposition parties (especially Congress) had raised questions over India not doing enough to prevent IMF from giving out loan to Pakistan.

It later emerged that Finance Minister Nirmala Sitharaman had strongly spoken against the bailout loan with not just IMF director Kristalina Georgieva, but also finance ministers of other European countries who were against giving a loan to Pakistan, when its role in funding terrorism against India was out there for everyone to see.

Sources revealed that Sitharaman had contacted IMF chief Kristalina Georgieva detailing how Pakistan had been diverting the loan amounts to funding its weapons purchases, which often ended up being used against India. Apparently, she had also cited the gruesome Pahalgam attack as the recent example when non-state actors were used to promote terrorism within India.

Sitharaman's meetings with her counterparts from European countries took place during her visit to Milan from May 4 onwards to attend the annual meeting of the Asian Development Bank, sources said.

India has stated that it was not against countries getting funds for their developmental needs, but was opposed to these funds being diverted for military uses at a time of tensions across the borders.

Indeed, there have been instances in the past when IMF loans to Pakistan have been used for defence purchases. When the Pakistani government presents its budget on June 2, its defence spending will be more clear.

IMF loans are given for specific projects, and as Pakistan's proposal seemingly fulfilled all the required conditions, it got support from the IMF. However, in a probable acknowledgement of India’s concerns, the IMF has set 11 new conditions on how Pakistan could utilise the funds it had lent.

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“In the last 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,” India had pointed out to the IMF.

The Indian government has also argued before the IMF meeting that the Pakistan military's “deeply entrenched interference” in economic affairs poses significant risks of policy slippages and reversal of reforms.

“Even when a civilian government is in power now, the army continues to play an outsized role in domestic politics and extends its tentacles deep into the economy,” the Indian government stated, after the IMF loan approval.

Notably, according to public data, Pakistan spends roughly 18 per cent of its general budget on “defence affairs and services”, while even conflict-affected countries spend (on average) far less—10-14 per cent of their general budget expenditure. 

Further, Pakistan’s arms imports increased dramatically from 1980 to 2023 by over 20 per cent (on average) in the years when it received IMF disbursements, in comparison to the years when it did not," sources said.

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