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India opposes ADB move to grant $800 million loan to Pakistan
India shared deep concerns regarding the potential misuse of ADB resources, particularly in light of Pakistan’s increasing defence expenditure
New Delhi: India opposed the Asian Development Bank (ADB)’s move to grant a $800 million loan to Pakistan citing data that indicate Islamabad diverting development funds for military use, and cautioned the bank about impending credit risks for itself, two officials said.
India shared deep concerns regarding the potential misuse of ADB resources, particularly in light of Pakistan’s increasing defence expenditure, its declining tax-to-GDP ratio, and the lack of demonstrable progress on key macroeconomic reforms, they said requesting anonymity.
India’s strong opposition against ADB’s financial aid to Pakistan came almost a month after New Delhi protested the International Monetary Fund (IMF)’s decision to provide a $2.3 billion bailout package to Islamabad, which saw IMF imposing about a dozen stringent conditions attached with the credit facility, making diversion of funds almost impossible.
According to a PTI report from Islamabad on Tuesday, ADB approved a $800 million loan to Pakistan for strengthening its fiscal sustainability and improving its public financial management. The credit package included a $300 million policy-based loan (PBL) and a $500 million programme-based guarantee (PBG), the report said.
India cautioned the ADB regarding the possibility of misuse of its resources. The linkage between Pakistan’s increase in expenditure on its military, as opposed to on development, cannot be fully explained solely in terms of its domestic resource mobilization, said the officials cited above.
India highlighted that Pakistan’s tax collection as a share of GDP declined from 13% in FY18 to 9.2% in FY23 and continues to remain way lower than the Asia and Pacific average of about 19%. However, there has been a significant increase in defense spending in the same period. This points to the possibility of diversion of funds made available to the country by the external agencies, they said.
“India expects the ADB management to adequately ring-fence the ADB financing, to prevent any such misuse,” one of them said. New Delhi questioned the management’s argument that improvements were noticed in certain areas of reforms in Pakistan, and said had the previous programs, funded both from ADB and the IMF, succeeded in putting in place a sound macroeconomic policy environment, the country would not have approached the IMF for the 24th bail-out program, he said.
“Such a track record calls into question both the effectiveness of the program designs, their monitoring and their implementation by the authorities,” he said. Pakistan’s poor track record of implementation stems from the military’s deeply entrenched interference in economic affairs, posing risks of policy slippages and reversal of reforms as has been witnessed in the past, he added.
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 situation has not changed for the better; rather the Pakistan Army now plays a leading role in the Special Investment Facilitation Council of Pakistan, he said.
“In fact, India expressed strong reservations about Pakistan’s existing governance system, which poses a continuing severe threat to regional peace and security. The country’s policy of cross-border terrorism has led to a worsening of the security situation in the region and has significantly escalated macroeconomic risks for Pakistan, which also heightens the enterprise risks for the ADB.
India expects the ADB to closely monitor the implementation of the policy matrix to achieve the intended outcomes, he said. “India also highlighted that the economic fragility of the borrowing country (Pakistan) poses credit risks to the ADB too,” he said.
Pakistan’s continued reliance on external debt raises concerns about the long-term sustainability of future exposures, especially in view of the high debt-to-GDP ratio and poor credit rating of the country, he said. Therefore, India urged ADB to be vigilant to safeguard the bank’s financial health and long-term prospects, he added.
