India Opposes ADB's $ 800 Million Loan To Pakistan, Flags Terror Funding Concern

Despite India’s opposition, the Asian Development Bank (ADB) recently approved a USD 800 million bailout package for Pakistan a month after the latter secured a USD 1 billion package from the International Monetary Fund (IMF).

The package was approved to enhance public financial management and includes a USD 300 million policy-based loan, and a USD 500 million programme-based guarantee. The approval comes in the middle of India’s global outreach efforts against Pakistan. India is currently seeking to isolate Pakistan, accusing the country of sponsoring terrorism following the Pahalgam terror attack that killed 26 people, mostly tourists in Jammu and Kashmir.

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While approving the loan, ADB Country Director for Pakistan Emma Fan said that the country has made significant progress in improving macroeconomic conditions, adding that the the loan programme backs the government’s commitment to further policy and institutional reforms that will strengthen public finances and promote sustainable growth.

The bank in a statement said that its programme supports reforms to improve tax policy, administration, and compliance, while enhancing public expenditure and cash management while enhancing digitalisation, investment facilitation, and private sector development. “These measures aim to reduce Pakistan’s fiscal deficit and public debt, while creating space for social and development spending,” the statement added.

India has approached several global lending bodies against future loan packages to Pakistan due to its backing for terrorism. The Indian government firmly opposed ADB offering any financial aid to Pakistan, noting serious concerns about misuse, India Today reported, citing government sources.

India has conveyed its fear that the loan from ADB and other international lenders would be diverted towards military expenses instead of development. While expressing its concerns over Pakistan’s support for cross-border terrorism, and the country’s failure to act on important mandates of the Financial Action Task Force (FATF), including freezing assets of UN-designated terrorist groups, India highlighted Pakistan’s economic fragility. India pointed out that while the tax revenue of the neighboring countries has dropped significantly from 13% of GDP in 2018 to just 9.2% in 2023, defense spending has risen.

India also underlined that Pakistan has a weak governance while noting the significant influence of the miliary, particularly through the Special Investment Facilitation Council. While stating that the ADB’s action threatens regional peace and stability, India said it also increases the bank’s risk exposure.

Additionally, India would be looking to demand the FATF to get Pakistan back onto its ‘gray list’, paving the way for scrutinizing the financial transactions of the neighboring countries. India and Pakistan engaged in a short conflict after the April 22 Pahalgam attack, as India launched Operation Sindoor in response to the terror attack, hitting targets inside Pakistan and Pakistan-Occupied Kashmir.

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ADB, a leading multilateral development bank supports inclusive, resilient, and sustainable growth across Asia and the Pacific, and Pakistan is a founding member of the bank. It has provided more than $52 billion in public and private sector loans, grants, and other forms of financing to Pakistan since 1966.

Notably, amid the tense conflict phase, the Executive Board of the International Monetary Fund (IMF) allowed an immediate disbursement of $1 billion (around Rs 8,500 crore) to Pakistan on May 9, despite India’s demand for a broader review of its loans to Pakistan. However, considering India’s demand, IMF reportedly warned Pakistan ahead of the release of the next tranche of its bailout in the loan, higlghting that the tension could heighten risks to the scheme’s fiscal, external, and reform goals.