The International Monetary Fund (IMF) last week approved a $1bn bailout for Pakistan, drawing sharp criticism from India amid heightened military tensions between the nuclear-armed neighbours. The disbursement was followed by an unexpected ceasefire.
Despite India's objections, the IMF board approved the second tranche of a $7bn loan, stating that Pakistan had demonstrated strong implementation of the programme and was continuing on a path of economic recovery.
The IMF also said it would support Pakistan’s efforts to build economic resilience against climate vulnerabilities and natural disasters, signalling the possibility of a further $1.4bn in future assistance.
India issued a strongly worded statement condemning the decision, citing two key concerns. First, it questioned the efficacy of repeated IMF bailouts in the face of Pakistan’s “poor track record” on economic reforms. More significantly, it raised the possibility that such funds could be diverted to support “state-sponsored cross-border terrorism” – a charge Pakistan has consistently denied. India warned that the IMF was exposing itself and its donors to “reputational risks” and undermining “global values”.
Even within Pakistan, some analysts concede there is merit to India’s first point. Pakistan has turned to the IMF 24 times since 1958, often without enacting meaningful reforms to improve public governance.
“Going to the IMF is like going to the ICU. If a patient needs intensive care 24 or 25 times, then clearly there are structural problems that need to be addressed,” said Hussain Haqqani, Pakistan’s former ambassador to the United States.
India’s ability to influence the IMF board is limited. It is one of 25 members, representing a constituency that includes Sri Lanka, Bangladesh, and Bhutan. Pakistan, by contrast, belongs to the Central Asia group, represented by Iran.
Unlike the United Nations, where each country has one vote, voting rights at the IMF are based on a country’s economic size and financial contributions – a system long criticised for favouring wealthy Western nations. The United States holds the largest share of IMF votes at 16.49%, while India has just 2.6%.
Moreover, IMF board rules do not permit votes against proposals. Members may either vote in favour or abstain, and decisions are made by consensus.
“This shows how the vested interests of powerful countries can influence key decisions,” an economist noted.
Addressing this imbalance was a central theme of India’s G20 presidency in 2023. A report co-authored by former Indian bureaucrat NK Singh and former US Treasury Secretary Lawrence Summers recommended severing the link between IMF voting rights and financial contributions to ensure more equitable representation for both the Global North and Global South. However, little progress has been made in implementing these reforms.
Recent changes in IMF policy have added further complexity. In 2023, the fund approved a $15.6bn package for war-torn Ukraine – the first such instance of lending to a country in active conflict.
“It bent its own rules to grant Ukraine a massive loan – so it cannot now use the same rules to withhold an already-agreed package for Pakistan,” said Mihir Sharma of the Observer Research Foundation (ORF) in Delhi.
While India’s move to oppose the Pakistan bailout may have been driven more by optics than any expectation of stopping the deal, it has once again highlighted the deep geopolitical divides shaping global finance – and the limited tools available to address them.