Why India Could Not Prevent IMF Bailout to Pakistan
IMF Sanctions $1 Billion Bailout to Pakistan Despite India's Protests
Last week, the International Monetary Fund (IMF) approved a $1 billion bailout tranche to Pakistan — a move that was vociferously criticized by India as military tensions escalated between the two nuclear-armed neighbors. The bailout was approved just a few days before a surprise US-brokered ceasefire was called.
Despite India's reservations, the IMF board approved the second tranche of a $7 billion bailout package, citing Islamabad's progress in pushing through its economic program and ongoing signs of recovery. The fund also said it would help Pakistan build economic resilience to climate risks and natural disasters, with further financing of around $1.4 billion possible in the future.
India's Concerns Over the Bailout
India responded with a strongly worded statement, raising two major questions. Firstly, Delhi asked about the "efficacy" of consecutive IMF bailouts given Pakistan's history of poor follow-through on reforms. Secondly, and more gravely, India mentioned the danger that IMF funds would be diverted to support "state-sponsored cross-border terrorism" — an accusation Pakistan denies.
India argued that in authorizing the bailout, the IMF was risking its own credibility and undermining global values. The IMF declined to comment on demands for a reaction to India's stance, though.
Pakistan's Track Record With IMF Loans
Pakistan's track record with IMF loans is acknowledged by some Pakistani analysts as the substance of India's initial argument. Pakistan has sought the assistance of the IMF 24 times since 1958, often without making the drastic reforms its economy needs for long-term stability.
Former Pakistani ambassador to the US Hussain Haqqani likened Pakistan's repeated bailouts to a patient who needs ICU care time and again, highlighting the structural problems in the country.
Limited Influence of India at the IMF
India's inability to delay the bailout is largely due to the governance structure of the IMF. India is part of the 25-member board but represents a constituency with lower combined voting rights along with Sri Lanka, Bangladesh, and Bhutan. Pakistan falls under the Central Asia grouping represented by Iran.
Contrary to the UN's one-country-one-vote principle, IMF votes are determined by economic size and financial contribution. The US holds the largest share (16.49%), while India has only 2.6%. Further, IMF rules allow board members to vote yes or abstain — but not vote no — and decisions are usually made by consensus.
An economist, who did not want to be identified, said this arrangement allows powerful countries to exert disproportionate influence over decision-making.
Calls for IMF Governance Reforms
India pushed for reforms during its G20 presidency in 2023. A joint report authored by former Indian bureaucrat NK Singh and former US Treasury Secretary Lawrence Summers recommended breaking the link between financial contributions and voting rights to give developing countries greater representation.
However, there has been no significant progress on implementing those recommendations.
Complications Created by IMF's Lending Precedents
The IMF's recent decision to lend $15.6 billion to war-torn Ukraine in 2023 also complicates matters. Mihir Sharma of the Delhi-based Observer Research Foundation noted that since the IMF has twisted the rules to lend to Ukraine, it is not able to use those rules now to block an agreed loan to Pakistan.
The Role of the Financial Action Task Force (FATF)
India's terrorism financing issues are more directly dealt with by the United Nations' Financial Action Task Force (FATF) that monitors terror finance globally. FATF grey or blacklisting curtails nations' access to global funding, including from the IMF.
"Grandstanding at the IMF cannot and did not work," Haqqani said. Pakistan was removed from the FATF grey list in 2022, which helped ease its access to foreign funds.
Potential Risks of IMF Reforms to India
Calls for reforms in IMF votings can have unintended consequences. Sharma warns that it can give more weight to China at potentially the expense of India's position.
Haqqani agrees with him that India should not use multilateral forums to settle bilateral scores, pointing to China's history of holding up Indian proposals in bodies like the Asian Development Bank because of border disputes.
Conclusion
India's failure to block the IMF bailout of Pakistan is a complex dynamic of institutional norms, geopolitical realities, and the structure of global financial governance. India had legitimate concerns, yet with its limited influence at the IMF and the need for more far-reaching reforms, the current framework favors continuity over confrontation.
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