Why Pak got USD 2.3-bn IMF loan and what India achieved by abstaining

The International Monetary Fund (IMF) on Friday (May 9) approved a $2.3-billion loan for Pakistan, despite formal objections from India. This decision wasn’t only about money, as the loan has come up for serious political debate and global concerns.

The loan came in two parts: $1 billion under the IMF’s Extended Fund Facility (EFF) and $1.3 billion from a newer programme called the Resilience and Sustainability Facility (RSF). Both are aimed at helping countries in trouble — whether due to poor economic management or climate-related risks.

How IMF decides loans

The IMF doesn’t lend blindly. It uses a three-part formula to figure out how much money a country can get.

First, each member country has a “quota” based on its economy’s size, trade openness and foreign reserves. If one thinks of it as a membership stake in a club, then Pakistan’s quota is about $5.5 billion. In tough times it can borrow more — up to 435 per cent of its quota. Second, the IMF looks at a country’s financial needs.

Currently, Pakistan is facing a major repayment crunch. In 2025, about $4.5 billion is due in external debt. In part, the $2.3-billion package is meant to prevent Pakistan from running out of foreign reserves and defaulting.

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EFF and RSF

Third, the type of programme under which the IMF is lending matters. The IMF's EFF offers longer-term loans for deep economic reforms, usually over three to five years. The RSF, in contrast, is a newer facility aimed at helping countries deal with climate change. And its loans come with softer terms, low interest rates and long repayment periods, up to 20 years.

Given that Pakistan already had a $7 billion EFF in place, the $1.3 billion RSF support was added apparently to strengthen the country’s ability to adapt to climate threats like floods and water scarcity.

Approval process

The road to this loan wasn’t short. Pakistan formally asked the IMF for help back in September 2024. In return, the IMF asked for tough changes like higher taxes, fewer energy subsidies and more action against corruption.

After months of talks, the IMF staff and Pakistan reached a staff-level agreement. But the final decision rested with the IMF’s Executive Board, which includes representatives from 190 countries.

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Why India abstained

On Friday (May 9), the board voted, with the US, the European Union, and China supporting the loan. India did not. India has a 2.75 per cent vote share in the IMF, not enough to block decisions on its own. Also, the IMF doesn’t allow “no” votes. Members can either vote “yes” or abstain.

By abstaining, India signalled strong disapproval. Its concerns were serious: it believes Pakistan has become overly dependent on IMF bailouts (28 since 1958) and warned that such aid might indirectly fund military activities.

Indian argument

India also argued that these repeated loans sent the wrong message that Pakistan can rely on external help without fixing its core problems. Even so, the loan was approved with 82 per cent support, well above the 70 per cent needed. What next for Pakistan For Pakistan, the loan is a lifeline, but it comes with strings attached.

The first $1 billion was disbursed right away. The rest, especially the RSF funds, will be tied to climate adaptation projects and progress on reforms. Over the next few years (2024–27), Pakistan has to meet several tough goals like raising its tax-to-GDP ratio to 15 per cent, cutting its losses in the power sector by $3.4 billion, privatising 10 state-owned companies and building infrastructure to withstand climate shocks. Meeting these goals won’t be easy.

Many past IMF programmes in Pakistan failed to deliver long-term change. Political pressures, weak institutions and elite resistance have often derailed reform efforts. In fact, only 12 out of Pakistan’s 25 past IMF loans were fully implemented.

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Debt still a problem

Even with this new funding, Pakistan’s total debt to the IMF will rise to $8.3 billion by the end of 2025. That’s a big burden as about 35 per cent of the country’s export earnings will go toward debt payments.

The RSF loan offers some relief because of its low 0.25 per cent interest rate, but the overall picture is still fragile.

Pakistan and FATF

This loan isn’t just about economics — it’s about geopolitics too. India, a major IMF contributor, used its voice to raise concerns. It has also backed global financial watchdogs like the Financial Action Task Force (FATF) in pressuring Pakistan over alleged misuse of funds and terror financing.

India has asked for Pakistan to be placed back on the FATF grey list — a designation that could further restrict its access to global funding.

Meanwhile, the US and China played their usual balancing act. The US supported the loan but emphasized strict conditions. China, which has already loaned Pakistan $14 billion bilaterally, also backed the package, underscoring its close ties with Pakistan.

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What India achieved

India’s abstention was strategic. While it didn’t stop the loan, it served as a public protest. These abstentions are recorded and can be revisited when future loans are considered.

India's statement warned of “misuse risks” and accused Pakistan of being a “serial defaulter”. In IMF politics, such comments add to the pressure without derailing the process.

Pakistan’s future

While the $2.3-billion IMF loan gives Pakistan breathing room, it doesn’t fix the underlying problems. The country remains trapped in a cycle of borrowing, crisis and reform promises that often go unfulfilled.

India’s protest highlighted a deeper issue: the global financial system may be propping up weak economies without ensuring they truly change. For now, Pakistan has avoided default. But whether this loan leads to real reform or just delays the next crisis remains to be seen.