IMF draws a red line for Pakistan: Can't use bailout to fund govt budget, diversion will have consequences

While the International Monetary Fund (IMF) defended its move to provide a $1 billion package to Pakistan despite India’s objection, it has laid down the ultimatum on how Islamabad would use it. On Friday, the IMF’s Communication Director, Julie Kozack, said that the international body has found that Pakistan has “met all of the targets” to acquire the aid package.

However, she noted that the aid is only being provided to the country to resolve its balance of payments problems and Pakistan is not allowed to redirect the money to financing its budget or any other sector.

“In the case of Pakistan, and this is my second point, the EFF disbursements, all of the disbursements received under the EFF, are allocated to the reserves of the central bank. So, those disbursements are at the central bank, and under the program, those resources are not part of budget financing. They are not transferred to the government to support the budget,” Kozack said on Friday.

More from World

PM Sharif to meet Prez Erdogan today as shadow of India-Pak tensions, boycott of Turkish businesses looms Nearly 50% Pakistanis favour trade boost with India to normalise ties: Post-Sindoor survey

“The third point is that the program provides additional safeguards through our conditionality. These include, for example, targets on the accumulation of international reserves. 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,” she added.

Why India is concerned

While clarifying the body’s stance, Kozack said that Pakistan has fulfilled all requirements to receive the latest loan instalments. It is pertinent to note that India voiced concerns about the financial support since it coincided with Pakistan’s response to India’s Operation Sindoor.

On May 7, the Indian mission struck 9 terror camps in Pakistan and Pakistan-occupied Kashmir (PoK). Operation Sindoor was seen as India’s response to the Pahalgam terror attack that led to the death of 26 tourists in Kashmir. During the military escalation between the two nuclear-powered nations, India requested the IMF to reassess the bailout, citing Pakistan’s allowance of its territory for state-sponsored terrorist activities against Indian citizens.

Impact Shorts

View All

What do Trump's India tariffs have to do with Alaska talks? 'Very strong link,' says South Asia expert

West Asia News Live: Israel’s heat wave, Turkey’s earthquake defines a turbulent day in Middle East

Defence Minister Rajnath Singh recently described the aid as ‘indirect funding to terror’ and warned international organisations, including the IMF, to reevaluate their decisions to aid Pakistan.

The IMF has provided Pakistan with $2.1 billion in two instalments under its Extended Fund Facility (EFF) programme. The instalments are part of a $7 billion agreement signed with Pakistan last year.