In a move that has sparked fresh diplomatic tension, the Asian Development Bank (ADB) has approved a USD 800 million bailout package for Pakistan, despite strong objections from India. The decision comes just a month after Pakistan secured a USD 1 billion bailout from the International Monetary Fund (IMF), further fueling concerns in New Delhi over international financial institutions aiding a country it accuses of financing terrorism and misusing foreign aid.

India’s Ministry of External Affairs expressed serious concerns about Pakistan’s use of external financing, arguing that funds provided for development could be diverted to military spending or activities that undermine regional stability. India has opposed any form of ADB assistance to Islamabad, citing Pakistan’s declining fiscal responsibility and increasing defence expenditures.

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India’s Fiscal Concerns Over Pakistan

According to official sources, Pakistan’s tax collection as a share of GDP dropped from 13.0 per cent in FY2018 to 9.2 per cent in FY2023, well below the Asia-Pacific average of 19 per cent. At the same time, Islamabad has reportedly increased its defence spending, raising alarm over the possible diversion of development funds. Indian officials noted that such a trend contradicts the intended use of international financial aid.

“The linkage between Pakistan’s increase in expenditure on its military, as opposed to on development, cannot be fully explained solely in terms of domestic resource mobilisation,” Indian government sources told ANI. They added that policy-based loans and programme guarantees, such as those approved by ADB, are especially susceptible to being used as fungible resources, potentially redirected to fund military operations.

ADB Package Breakdown And Pakistan's Response

According to Khurram Schehzad, advisor to Pakistani Finance Minister Muhammad Aurangzeb, the ADB’s financial package includes a USD 500 million programme-based guarantee and a USD 300 million policy-based loan. Schehzad confirmed the approval via social media, stating that the funds would support economic reform and stability.

India’s opposition to Pakistan’s international bailouts is not limited to the ADB. New Delhi had earlier urged the IMF to reconsider its USD 1 billion aid package, warning that such support amounts to “indirect funding of terror.” Defence Minister Rajnath Singh echoed this sentiment, criticising global institutions for aiding a country that has “failed to implement long-term macroeconomic reforms.”

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An official Indian statement noted, “Pakistan has received IMF disbursements in 28 of the last 35 years. If the past programs had succeeded, there would be no need for yet another bailout.”