India has stepped up its diplomatic pressure against Pakistan’s IMF bailout, calling for the global lender to review its $7 billion Extended Fund Facility (EFF) program amid fears of misuse to finance state-sponsored terrorism.
Defence Minister Rajnath Singh, on May 16, 2025, described as “indirect terror funding” the $1 billion release, after India’s Operation Sindoor, a military attack on terror outfits in Pakistan after the April 22 Pahalgam bombing that claimed 26 lives.
As India’s USD 3.5 trillion economy leads the world in counter-terrorism, IMF’s process limitations and Pakistan’s bailout dependence underscore the intricacies of matching financial assistance with security priorities.
India’s complaints, raised by Finance Minister Sanjay Malhotra and Foreign Secretary Vikram Misri, invoke Pakistan’s “poor record” of allocating 25% of IMF money to military and terror infrastructure, according to a 2024 Ministry of Finance release.
Pakistan has received 26 IMF programs since 1968, with $2.1 billion released in FY2024-25 alone, but economic reforms are behind, with GDP growth at 2.7% against a target of 3.6%, according to a 2024 IMF report. India’s FATF dossier, filed prior to its June 2024 plenary, requests Pakistan’s greylisting for not freezing assets of UN-designated terrorists, according to a 2025 report in The Hindu.
India’s vociferous criticism of the IMF’s May 9, 2025, approval of a $1 billion tranche from a $2.4 billion package received stinging criticism, particularly as it overlapped with rising tensions after Pahalgam. The IMF defended its decision, stating Pakistan met “all targets” under the EFF, with safeguards like monthly reviews to prevent misuse, per a 2025 Hindustan Times report. However, India abstained from the IMF board vote, arguing that funds free up Pakistan’s budget for defence, estimated at ₹2.5 trillion for FY2026, an 18% rise over IMF’s ₹2.14 trillion projection, per a 2025 Express Tribune report.
In the Asian Development Bank (ADB), India stood in the way of an $800 million loan to Pakistan on FATF violations, according to a 2025 Business Today report. India is also set to press the World Bank to reconsider a $20 billion aid package in June 2025, according to a 2025 India Today report. These actions are part of India’s post-Pahalgam strategy, involving Operation Sindoor and closure of trade routes, to economically pressure Pakistan.
Pakistan’s economy, dependent on $4.9 billion foreign loans in FY2025-26, is under IMF supervision, with 11 new conditions, including budget ratification and subsidy reductions, according to a 2025 The Hindu report.
IMF pointed to India-Pakistan tensions as a “reputational risk,” citing Pakistan’s stock market stability in the face of conflict, according to a 2025 Firstpost report. However, Pakistan’s inability to stem terror financing, with top officials attending militant funerals, erodes reform credibility, according to a 2025 India Today report.
Government programs align behind India’s position. The Production-Linked Incentive (PLI) program, with ₹50,000 crore, reinforces India’s economic influence, adding 30% to GDP. PM Gati Shakti reduces trade logistics expenditure by 20%, improving export oversight.
The Open Network for Digital Commerce (ONDC) improves MSME compliance, facilitating tax monitoring by 25%. Skill India’s 2 million trained personnel, though just 5% skilled in financial forensics according to Nasscom, are behind anti-terror financing programs. The Directorate of Revenue Intelligence (DRI) employs AI for following illegal money, seizing ₹10,000 crore in 2024, according to a CII report.
Challenges continue. IMF’s procedural inflexibility, without a vote for EFF renewals, constrains India’s leverage, according to a 2025 The Hindu report. MSMEs, dealing with 40% of India’s trade, pay compliance expenses of ₹1–2 lakh per month, making it more difficult to monitor exports. Tier 2 city skill shortages and infrastructure problems, such as irregular power, slow data-sharing, affecting 20% of DRI units.
Delays in regulation for FATF action (4–6 years compared to China’s 2) and low ONDC adoption, at just 15% of MSMEs, slow the pace. Volatility in global trade, affecting 30% of Indian exports, adds to the burden, according to a 2024 UNCTAD report.
Experts offer solutions. Subsidies under Technology Upgradation Scheme can defray MSME expenses. Increasing Skill India’s forensic training can fill gaps. Improved 5G and power dependability through PM Gati Shakti will make tracking smoother. Public-private collaborations with IITs can create anti-terror funding technology. CII-conducted campaigns can raise ONDC and FATF consciousness.
India’s appeal to review Pakistan’s IMF program highlights the intersection of finance and security. As India’s USD 3 billion anti-terror tech market is estimated by 2030, its leadership in counter-terrorism financing becomes imperative.
India can achieve this through resolving procedural, skill, and infrastructure hurdles, which enables global assistance to be in line with peace, leaving a safer Viksit Bharat.