Why India objected to IMF loan for Pak, and why the objections made no difference

When the International Monetary Fund (IMF) approved a new $2.3 billion bailout for Pakistan this month, India found itself isolated on the global stage as it opposed the move.

The IMF Executive Board, which includes representatives from 190 member countries, voted overwhelmingly in favour, with 82 per cent backing the loan, well above the required 70 per cent approval threshold. Major players like the US, European Union (EU), and China supported the deal, while India chose to abstain.

India is right to object as it’s another loan, with more promises of reform, and yet the same old problems. Given it's not the first time Pakistan had gone to the IMF for help – it's the 24th time since 1958, which is roughly one IMF bailout every three years (2.8).

Also read: IMF to hold virtual discussions on Pakistan Budget as Islamabad visit delayed

IMF's latest bailout

Going back to the basics, the IMF is an international lender that helps countries in financial trouble, and its bailouts are meant to stabilise economies and support reforms. Pakistan’s latest package includes $1 billion as part of an existing $7 billion loan programme (called the Extended Fund Facility, or EFF) and another $1.3 billion from the IMF’s climate resilience fund called the Resilience and Sustainability Facility (RSF).

This new money is supposed to help Pakistan cope with a growing balance-of-payments crisis. In simple terms, Pakistan is spending way more than it’s earning from exports, which is draining its foreign currency reserves.

In January, Pakistan exported goods worth $3 billion but imported $5.3 billion. That’s a trade deficit of $2.3 billion in a single month, 33 per cent higher than the previous year.

In 2024, Pakistan ran a trade deficit of $24.05–24.08 billion, an improvement from $27.47 billion in 2023, but the gap remained large, underscoring a persistent balance of payments crisis. Exports grew to $30.64–32.44 billion, up over 10 per cent from $27.54–27.72 billion the year before, while imports stayed high at $54.73–56.48 billion, only slightly down from $55.19 billion in 2023.

Despite efforts to boost exports and curb imports through currency controls and restrictions, Pakistan continued to spend far more on foreign goods than it earned, keeping external financing needs high and reserves under pressure.

Also read: Why Pak got $2.3 bn IMF loan and what India achieved by abstaining

How is IMF funding bailouts?

The IMF works with something called Special Drawing Rights (SDRs), which work like Monopoly money of global finance. It's real cash, but countries can trade them in for actual hard currency like dollars or euros when their reserves are running low.

Every country gets a stash of SDRs based on the size of its economy, which also decides how much say it has at the IMF table. The bigger your economy, the more Monopoly money you get and the louder your voice in the room.

At the IMF table, it’s not one-country-one-vote. It’s like a high-stakes, real-world Monopoly, where the size of your wallet decides how much say you get. India, which holds a 2.75 per cent quota, gets a 2.63 per cent voting share — more than Pakistan, but still pocket change next to the US, which controls a hefty 16.5 per cent of the vote.

Since any major loan needs 85 per cent approval, players like the US can make or break the deal with a flick of their wrist.

Also Read: IMF approves $1 billion loan for Pakistan: PMO

Is Pakistan gaming the system?

India’s anger isn’t just rhetoric or emotion, but based on cold facts and hard numbers. For instance, India is right in saying that Pakistan has received endless bailouts with no real change.

Pakistan has received IMF money in 28 of the last 35 years. Since 2019 alone, there have been four different IMF programmes. But only 12 out of 24 programmes were completed successfully. Most of the time, Pakistan misses its targets and gets waivers, exceptions that let it keep the money anyway.

Another valid point India makes is on the military’s grip on the economy. Media reports point to how, through powerful business groups like the Fauji Foundation, the army reportedly controls nearly 40 per cent of economic activity.

The country’s new economic council, the Special Investment Facilitation Council (SIFC), is shockingly led by Army generals, not economists or civilian leaders. Its apex committee includes Army Chief General Asim Munir, along with other senior military officials like Lieutenant General (retd) Nadeem Anjum and Lieutenant General (retd) Munir Afsar.

India has also raised alarm bells, alleging that some IMF funds, about $2.1 billion since 2020, have indirectly supported Pakistan’s military and possibly even cross-border terror infrastructure. While the IMF hasn’t confirmed this, the claims have added weight to India’s objections.

Also read: Look 'deep within' before extending package to Pakistan: India to IMF

Pakistan misses long-term goals

So why does the IMF keep lending to Pakistan? According to the IMF, Pakistan is making progress by increasing tax revenue and cutting back on energy subsidies. On paper, it looks like inflation, which was at a crushing 38 per cent in 2023, has moderated to 10-15 per cent in the last six months.

Underneath, the same structural issues remain as half of Pakistan’s budget goes toward paying debt, while the military's budget of about 4 per cent of its GDP remains untouched and it's tax-to-GDP ratio is just 9.1 per cent, one of the lowest in the world. This means Pakistan still isn’t raising enough money through taxes or exports to fund itself. So the cycle continues: borrow, patch things up, then borrow again.

Is IMF system broken?

India isn’t just questioning Pakistan; it’s questioning the entire system. The way the IMF is structured gives more say to richer countries like the US, China, and the European Union, who together hold 45 per cent of the votes. Even if India objects, it can’t block loans. At best, it can abstain.

Pakistan, with a relatively small economy, gets a quota of about $5.5 billion and can borrow up to 435 per cent of its quota, which leads to a dangerous cycle of dependency. Even a 2024 IMF review itself admits that Pakistan is becoming “too big to fail”, in other words, if it collapses, the region suffers, so the world keeps rescuing it.

India wants change; real reform in Pakistan and a fairer system at the IMF. But the IMF feels that if it cuts Pakistan off, the country could default on its $125-130 billion debt, which could have a ripple effect across South Asia.

So, the IMF keeps the money flowing even if it means rewarding poor performance. Until the rules change and accountability is prioritised, Pakistan will get continued bailouts even if security concerns heighten in the next few months. India’s frustration and objections are valid, but the IMF system, as it stands, isn’t built to listen; political power play and technical box-checking will continue to win over real reform.