Pakistan’s persistent reliance on the International Monetary Fund (IMF) for financial aid has come under scrutiny following the board’s recent approval of a $7 billion loan. Whether this means the bailout worked perfectly has become an important question as the decision’s consequences unfold. It follows Pakistan’s exit from the Financial Action Task Force (FATF) grey list in 2022 and has far-reaching consequences on regional dynamics, particularly in addressing India’s concerns.
This would not be the first time Pakistan had to seek IMF’s help. Often, the country has been unable to follow through with real reforms to bring more public governance. Hussain Haqqani, a former Pakistani ambassador to the United States, moved to Washington in early 2008 and soon realized something was wrong with this pattern. He stated that if a patient repeatedly visits the intensive care unit (ICU), it indicates underlying structural challenges that must be addressed.
“Going to the IMF is like going to the ICU.” – Hussain Haqqani
The IMF’s recent approval of the second installment of its loan to Pakistan was justified by the board’s assessment that Islamabad had demonstrated effective program implementation, leading to an economic recovery. The fund committed to bolster Pakistan’s efforts to improve the resilience of their economy, particularly in the face of climate vulnerabilities and shocks from natural disasters. Further, it claims to have obligations of $1.4 billion in future years.
India was the most vociferous opponent of the IMF’s move. Unsurprisingly, they doubted the logic behind giving Pakistan any financial assistance at all, pointing to its shoddy history of following through on required reforms. This sentiment is emblematic of wider fears within India, and specifically the region, about the broader geopolitical ramifications of New Delhi continuing to fund its rival neighbor.
According to veteran development experts, India’s demands for major reforms in IMF’s lending processes may lead to dangerous outcomes. Senior fellow at Delhi’s Observer Research Foundation Mihir Sharma had an early warning at the ready. He cautioned that the proposed changes might empower Beijing more than New Delhi.
“Reforms would inevitably give Beijing [rather than Delhi] more power.” – Mihir Sharma
The shifting balance of power within the IMF provides a microcosm of these broader geopolitical tectonic shifts. The United States currently commands the largest voting share at the IMF, at 16.49%. In stark contrast, India’s share is a mere 2.6%. As discussions about reforming voting rights and financial contributions continue, experts advocate for breaking the link between these factors to ensure fairer representation for both the Global North and Global South.
India’s position is an attempt to be careful in using bilateral disputes in multilateral fora. India has passed through the valley of tears in these crises many times in its history. Primary among them has been China’s blocking of loans from the Asian Development Bank that India has applied for, all due to long-running border disputes.
This shift in narrative around IMF loans hasn’t just been specific to Pakistan. In 2023, the IMF approved a historic 15.6 billion dollar loan to Ukraine. This set a new and notable precedent as it was the first time that such a big loan had been granted to a country in a state of war. Such developments underscore the problematic nature of international financial assistance and double standards at play depending on geopolitical interests.