The Executive Board of the International Monetary Fund (IMF) has recently made significant strides in supporting Pakistan's economy by approving two crucial financing decisions, which collectively disburse approximately $2.4 billion under its economic reform and climate resilience programs. This decision comes at a critical juncture for Pakistan, which has been grappling with economic instability and the adverse effects of climate change.

Following an Executive Board meeting held on May 9, the IMF announced that it had successfully completed the first review of Pakistan's economic reform program. This program is backed by the Extended Fund Facility (EFF) arrangement, which has now enabled the immediate disbursement of around $1 billion. With this new funding, total disbursements under the EFF arrangement have reached about $2.1 billion, marking a significant step in Pakistan's ongoing economic recovery efforts.

In addition to the funding under the EFF, the IMF Executive Board also approved Pakistan's request for an arrangement under the Resilience and Sustainability Facility (RSF), which aims to provide about $1.4 billion. The RSF is specifically designed to assist countries like Pakistan in addressing their vulnerabilities related to climate change and natural disasters, highlighting the IMF's recognition of the pressing challenges posed by environmental issues.

It is important to note that the IMF had previously approved a 37-month EFF for Pakistan on September 25, 2024, amounting to approximately $7 billion. The initial review of this program allowed for an immediate access of around $1 billion, which has now been bolstered by the recent additional disbursement.

The Executive Board of the IMF plays a crucial role in managing the day-to-day operations of the fund. Comprised of 25 Directors elected by member countries or groups of countries, along with the Managing Director serving as the Chairman, the board's voting power is proportional to the economic size of member nations. Notably, the United States, as the largest financial contributor, wields the most significant voting power at 16.49 percent. In contrast, India, Bangladesh, Bhutan, and Sri Lanka collectively hold a mere 3.05 percent share.

During the recent meeting, India expressed strong dissent towards the IMF's bailout package for Pakistan, opting to abstain from voting. The IMF's bylaws do not provide a mechanism for member countries to vote against a proposal outright; they can only choose to vote in favor or abstain. This abstention reflects India's deep concerns regarding the effectiveness of IMF programs, particularly in relation to Pakistan's track record of economic management and reform implementation.

In a statement released post-meeting, India highlighted its apprehensions regarding potential misuse of the funds provided through the IMF, specifically pointing to possibilities of these resources being diverted to support state-sponsored terrorism. India underscored that Pakistan's history as a prolonged borrower from the IMF, with disbursements occurring in 28 of the past 35 years, raises questions about the efficacy of the fund's programs in ensuring accountability and delivering intended outcomes.

“Pakistan has repeatedly faced structural weaknesses that necessitate bailouts, yet it has not demonstrated a consistent commitment to adhering to the IMF's reform conditions. The previous programs have failed to create a stable macroeconomic environment, leading to yet another request for support,” India's Ministry of Finance remarked. This statement underscores a critical viewpoint that India's concerns are not merely political but are rooted in a broader skepticism towards Pakistan's fiscal governance.

India further argued that rewarding continued sponsorship of cross-border terrorism sends a dangerous message to the global community and presents reputational risks to funding agencies. “While several member countries echoed concerns regarding the potential for fungible inflows from international financial institutions to be misused for military purposes, the IMF’s procedural limitations seem to hinder the consideration of these moral implications,” the Ministry stated.

On a more optimistic note, the IMF has recognized Pakistan’s efforts in implementing reforms backed by the EFF. According to the fund, the country has shown signs of stabilizing its economy, as evidenced by a primary fiscal surplus of 2.0% of GDP during the first half of FY2025, historically low inflation rates at 0.3% in April, and improved foreign exchange reserves that have increased significantly over recent months.

The priorities set forth under the EFF moving forward include maintaining fiscal discipline, broadening the tax base, restructuring state-owned enterprises, and enhancing public service delivery and energy sustainability. The IMF has also emphasized the necessity of decreasing dependence on public sector financing to foster more private investment and credit availability.

Furthermore, the RSF aims to bolster climate resilience by enhancing disaster response coordination, optimizing water resource usage, improving climate-related risk disclosures from financial institutions, and supporting Pakistan's international climate commitments. This multifaceted approach underscores the IMF's commitment to not only financial stability but also to addressing environmental challenges.

Nigel Clarke, the IMF Deputy Managing Director, commended Pakistan for making meaningful progress in restoring macroeconomic stability despite facing a challenging global economic landscape. He noted, “The economy is recovering, with inflation significantly reduced and external buffers strengthened. However, risks remain from global economic uncertainties, geopolitical tensions, and persistent domestic vulnerabilities. It is vital for authorities to uphold sound macroeconomic policies and advance reforms to protect the gains made and ensure sustainable growth led by the private sector.”

The RSF is designed to provide affordable long-term financing to support low-income and vulnerable middle-income countries in undertaking essential reforms aimed at mitigating risks to their balance of payments stability. In contrast, the EFF is tailored to assist nations facing severe medium-term balance of payments challenges stemming from structural issues that require time-intensive solutions. This financial support is structured to foster a conducive environment for implementing necessary reforms and facilitating a longer repayment period, thereby allowing countries like Pakistan to stabilize and grow economically.