IMF Approves $2.3 Billion Funding for Pakistan

On 9th May 2025, the International Monetary Fund cleared $2.3 billion in aid for Pakistan under its Extended Fund Facility (EFF), despite India abstaining from the vote, citing Pakistan’s alleged support for cross-border terrorism.

Key Points

India’s Objection: India opposed the bailout, warning it could damage the IMF’s credibility, given Pakistan’s history of using international funds while supporting terrorism.
Economic Fragility: Pakistan faces a precarious economic situation with $130+ billion in external debt and forex reserves barely enough to cover three months of imports.
Debt Pressures in FY25: Over $22 billion in external public debt is due this fiscal, including $13 billion in bilateral deposits—posing a severe strain on reserves.
IMF Disbursement: The board cleared ~$1 billion in immediate disbursement, citing Pakistan’s implementation of reforms and early signs of recovery post the 2024 $7-billion bailout.
Global Concerns: Moody’s warned that escalating tensions with India could derail Pakistan’s fiscal consolidation and hamper external financing access.
Risks to Stability: IMF flagged that policy slippages, political tensions, and unsustainable subsidies could undermine Pakistan’s fragile macroeconomic stability.
Impact on India: Moody’s said India remains economically stable and largely insulated due to limited trade links, though prolonged conflict may affect defence spending.