IMF defends its move to release for Pakistan
IMF approved a 37-month, $7 billion Extended Fund Facility (EFF) program for Pakistan in September 2024
The International Monetary Fund defended its decision to disburse funds to Pakistan under an existing program despite Indian opposition at a press conference on Thursday. Julie Kozack, director of the IMF’s Communications department, told reporters in Washington DC that Pakistan had met the conditions of its IMF bailout program.
“What I want to emphasize here is that it is part of a standard procedure under programs that our Executive Board conducts periodic reviews of lending programs to assess their progress. And they particularly look at whether the program is on track, whether the conditions under the program have been met, and whether any policy changes are needed to bring the program back on track. And in the case of Pakistan, our board found that Pakistan had indeed met all of the targets. It had made progress on some of the reforms, and for that reason, the board went ahead and approved the program,” said Kozack.
IMF approved a 37-month, $7 billion Extended Fund Facility (EFF) program for Pakistan in September 2024. EFFs are designed to help countries that are facing serious balance of payments problems as a result of “structural impediments or slow growth”. Nations that receive IMF funds as part of EFF programs are expected to undertake economic and governance reforms to improve their financial position. Pakistan has been part of at least 6 EFF programs since 1980.
The IMF approval to Pakistan came with an immediate disbursement of $1 billion. On May 9, IMF announced that its Executive Board had approved an additional disbursement of about $1 billion to Islamabad after a review of the program. However, in the aftermath of the Pahalgam terror attacks, Indian officials and functionaries have raised questions about the program.
“Certainly, a large part of the IMF’s $1 billion assistance will be used to fund the terror infrastructure. Will this not be considered indirect funding by IMF, an international organisation, for terror? Any financial assistance to Pakistan is no less than terror funding. The funds India gives to IMF should not be used, directly or indirectly, to create terror infrastructure in Pakistan or any other country,” said Defence Minister Rajnath Singh on May 16.
According to a government statement, India raised concerns at IMF about the efficacy of the fund’s programs in the context of Pakistan’s poor economic track record. New Delhi also raised the possibility that IMF funds could be used by Islamabad to sponsor cross-border terrorism. India ultimately abstained from the vote on the EFF program for Pakistan.
During the press conference on Thursday, officials were asked about India’s opposition to further IMF funds being disbursed to Pakistan.
“With respect to the voting or the decision-making at our board, we do not disclose that publicly. In general, decisions are taken by consensus, and in this case, there was a sufficient consensus at the board to allow us to move forward ,” said Nozack in response.
However, Nozack also pointed out that IMF funds could not be used by Pakistan to bolster its national budget as its program is specifically targeted at providing support for the country’s balance of payments.
“It includes a zero target, meaning no lending from the central bank to the government. And the program also includes substantial structural conditionality around improving fiscal management. And these conditions are all available in the program documents if you wanted to do a deeper dive. And, of course, any deviation from the established program conditions would impact future reviews under the Pakistan program,” Nozack told reporters.
To be sure, these are conditionalities that have to be met by Pakistan; IMF has no mechanism to ensure, for instance, that the Pakistan central bank does not lend to the government, although it can hold back future funding when it reviews whether its conditions have been met.
