In May 2025, the International Monetary Fund disbursed another $2.4 billion to Pakistan—$1 billion under its $7 billion Extended Fund Facility (EFF) and $1.4 billion under the Resilience and Sustainability Facility (RSF). These disbursements were made despite Pakistan’s recent escalation of hostilities along the Line of Control, a deadly cross-border attack that claimed civilian lives in Pahalgam, and amidst ominous nuclear sabre-rattling.
Let that sink in. A country under scrutiny forcross-border aggression is receiving billions in international aid with minimal political or strategic conditions.
LONG-STANDING RELATIONSHIP OF PAKISTAN WITH IMF
Faced with structural weakness in the economy, long-term balance of payment issues, and external shocks, the prime minister of Pakistani government Shehbaz Sharif has once again turned to support from the IMF. The IMF and Pakistan have a long historical relationship: since Pakistan joined the fund in 1950, the IMF has provided a total of 24 programs to the country and Pakistan is one of the largest IMF debtors after the countries such as Argentina, Egypt, and Ukraine. Despite continued assistance from the IMF, the Pakistani economy has failed to take off even as other Asian countries, including in south Asia, have done so. Pakistan’s current economic issues highlight a complex interplay between poor economic management decisions, foreign policy strategies that have undermined the growth and domestic stability, misguided IMF loans that sustained debt dependencies while enforcing severe austerity measures.
Pakistan has received repeated IMF support since 1988, with over 20 loan programmes approved—often justified by its large population, fragile economy, and geostrategic location. The current $7 billion EFF was approved in 2024 after a previous short-term bailout ended, continuing a decades-long pattern of financial rescue despite limited structural reform. The IMF’s rationale is that Pakistan has made measurable progress on economic reforms: a primary fiscal surplus, falling inflation, and rising reserves. These are milestones achieved on paper. But the IMF is not merely a bookkeeper—it is a geopolitical actor with influence. And it is this contradiction that demands urgent scrutiny.
Timing and Regional Fallout: The Pahalgam Attack and Broader Implications
The bailout follows closely on the heels of the Pahalgam terror attack in India, where suspected cross-border links further strained bilateral relations. Critics, including Indian MP Gaurav Gogoi, warn that the influx of funds may embolden Pakistan’s military establishment, with possible consequences for regional security. This concern is not isolated. Many Indian commentators and policy analysts argue that continued bailouts without reform enforcement risk perpetuating a dangerous cycle—economic support enabling policies that threaten neighboring nations.
The IMF defends the bailout as necessary for economic stabilization and climate resilience, but critics argue that the institution is overly reliant on macroeconomic metrics, failing to account for:
• Geopolitical instability
• Governance issues and corruption risks
• Repeated loan failures without systemic change
While the IMF has imposed conditions—including tax reform, restructuring of state-owned enterprises, and climate-risk management—its ability to enforce compliance remains questionable.
Pakistan’s economy seems to be on the road to recovery, bringing it back from the brink of a default in 2022 with multiple loans from the IMF. But all economic recovery will come to a halt as Pakistan will be facing deep economic crises after the Indian government took strict diplomatic actions following the Pahalgam terror attacks in Kashmir. The government’s reaction to the terror attack includes halting bilateral trade with the Pakistan, expelling Pakistani officials from the high commission, cancelling visas under the SARCS visa exemption scheme, and suspending the INDUS water treaty. Apparently each of these actions is accepted to put more pressure on Pakistan’s already fragile economy. Reports suggest that the prices of basic food items like rice, flour, vegetables, fruits, and chicken have surged sharply. As per media reports, the price of rice has jumped to Rs 340 per kg, while chicken price has surged to Rs 800 per kg.The end of India-Pakistan trade is expected to make this problem even more severe. The International Monetary Fund (IMF) cut Pakistan’s economic growth forecast to 2.6% for this fiscal year in a report on April 22, down from the earlier prediction of 3% made in January.
India has strongly opposed the bailout, citing a long history of misused IMF aid by Pakistan, with 28 loan programs in the past 35 years but little sign of sustainable reform. Indian officials have expressed fears that:
• Funds may be diverted to military or extremist activities
• Pakistan’s military influence over economic decisions undermines civilian reform
• IMF funds could embolden destabilizing behavior in the region
India abstained from the IMF vote, with Foreign Secretary officials calling for a reassessment of Pakistan’s eligibility for global financing.
Pakistan’s Grey List Status Raises Questions on IMF Loan Decisions
Pakistan has already taken a loan from China of around 5.5 lakh crore rupees, and taking another loan would increase its debt burden. According to the Financial Action Task Force (FATF), established in Paris, France, countries that support terrorism can be blacklisted, restricting access to international financial support and loans from institutions like the World Bank and IMF. Pakistan’s relationships with Turkey and China have helped it avoid being blacklisted. However, Pakistan remains on the grey list due to concerns about its actions against terrorism. Given this, it’s puzzling why the IMF is providing loans to Pakistan despite its alleged involvement in terrorism and terror funding.
The Big ‘Why’
Why does the international community, especially through financial institutions, continue to decouple economic metrics from political and security realities? Why are nations like India—who have borne the cost of terror, instability, and repeated provocations—expected to accept this pattern of bailouts without any accountability mechanism? And why is the IMF, an institution that claims to stand for stability and sustainability, not demanding basic guarantees of regional peace as a condition for such unprecedented support? The IMF may insist that its mandate is purely economic. But global economics does not exist in a vacuum. The money flows into a system, and that system—in Pakistan—is shaped by a security establishment with a long history of undermining regional peace. If we are serious about accountability, then financial support must come with real strings attached. If we are serious about sustainability, then stability—true political stability—must be part of the definition.
Navigating Economic Aid and Geopolitical Risks
The IMF’s agreement to provide Pakistan a $1 billion loan, against the protests of India, is an illustration of how economic necessity has to be spliced with regional security in a complex manner. For Pakistan, the funds form a lifeline during dire financial straits, but India’s musings about misuse and ineffective reforms raise some doubt over the meaning of this kind of support in the long term. As the waters of tension begin to boil between these bordering nuclear powers, the world community must tread a careful line between the pressing necessity for economic help and the necessity of solving fundamental security problems.
In the end, the loan will highlight the necessity for more careful decisions in the area of global finance, and the effort toward dialogue between India and Pakistan must be renewed. Even though the funds could help stabilise Pakistan’s economy in the short run, their overall repercussions, both in terms of economy and geopolitics, are going to be a function of how the two countries use them and whether or not the two can get past their deep-seated rivalry to seek a path to cooperation.
Dr.S.Krishnan is an Associate Professor in Seedling School of Law and Governance, Jaipur National University, Jaipur
Labdhi Tervecha is a 1st year student of BBALLB (H) of Seedling School of Law and Governance, Jaipur National University, Jaipur
Sukriti Gaur is a 1st year student of BBALLB (H) of Seedling School of Law and Governance, Jaipur National University, Jaipur
