India stresses the need for stringent monitoring during a recent review of the IMF’s ₹3 billion loan to Pakistan; new PM Shehbaz Sharif seeking additional funding support from the IMF

Taking a tough stance, India has batted for “stringent monitoring” of any emergency funds provided by the International Monetary Fund (IMF) to its financially beleaguered neighbour Pakistan, stressing that such funds must not be redeployed towards defence bills, terror financing or repayment of loans from other countries.

India’s position was put across to the IMF’s executive board by its nominee, executive director Krishnamurthy Subramanian, during a recent review of an ongoing $3 billion short-term Stand-By Arrangement (SBA) granted to Pakistan by the Fund last July. India has usually abstained from voting on loans sought by Pakistan and did the same last July when the SBA was approved.

Stringent Monitoring

In mid-January, when the board reviewed the loan, India’s representative abstained from voting again, following which the IMF released a $700 million tranche to Pakistan. However, this time, the Indian government requested Mr. Subramanian to convey to the IMF board the need to put in place “checks and balances and ensure a stringent monitoring” of Pakistan’s utilisation of IMF money.

“Such monitoring is imperative to ensure that funds received to meet development imperatives are not diverted towards defence spending and repayment of external debt owed to third countries,” India is learnt to have stressed to the IMF’s executive board. The IMF and Mr. Subramanian did not respond to queries from The Hindu till the time of going to press.

Seeking More Funds

The development assumes significance as Pakistan’s newly formed government, led by Prime Minister Shehbaz Sharif, is pursuing “immediate talks” with the IMF to seek additional funding support, including the $1.2 billion residual balance under the SBA which expires next month, and beyond.

The IMF’s support had helped cash-strapped Pakistan stave off an imminent external payments crisis that it faced last June when forex reserves had dwindled to just $3.5 billion, barely enough to pay a month’s import bill. Pakistan’s economy — hit by severe floods in 2022, external shocks, and sharp inflation — had contracted in 2022-23. (Its financial year runs from July to June.)

Ahead of the elections, IMF staff had met representatives of Pakistan’s major political parties — the Pakistan Muslim League-Nawaz, Pakistan People’s Party, and Pakistan Tehreek Insaf — to seek confirmation of their support for its lending programme that mandates wide disclosures, deficit goals, and multiple reforms, such as a market-determined exchange rate for its Rupee and tighter anti-corruption steps.

Long-Term Financing Plan

By February, Pakistan’s forex reserves had improved slightly to $8 billion, but were still only sufficient to cover six weeks of imports. After last month’s general election results, Moody’s Investors Service reckoned that Pakistan’s external financing needs will remain high till at least 2026-27, meaning that it will need a longer-term financing plan after its current SBA from the IMF ends.

“Overall, uncertainty around Pakistan’s ability to quickly negotiate a new IMF programme after the current one expires in April 2024 remains very high. Pakistan’s government liquidity and external vulnerability risks will remain very high until there is clarity on a credible longer-term financing plan,” the global ratings major had cautioned.

(With Agency Inputs)