India opposed, but ADB approved $800 million loan to Pakistan

This is the second time after Operation Sindoor where Pakistan managed to get fund despite India’s strong opposition
| Photo Credit:
CHERYL RAVELO

India vehemently opposed proposal in the meeting Asian Development Bank to provide $800 million fund to Pakistan, said government source. However, the proposal was approved on Tuesday.

This is the second forum after Operation Sindoor where Pakistan managed to get fund despite India’s strong opposition. On May 9, the International Monetary Fund (IMF) approved the disbursement of second tranche of around $1 billion under Extended Fund Facility (EFF) arrangement. It also approved an arrangement under the Resilience and Sustainability Facility (RSF), with access of about $1.4 billion

Meanwhile, sources say India expressed deep concerns regarding the potential misuse of ADB resources, particularly in light of Pakistan’s increasing defence expenditure, its declining tax-to-GDP ratio, and the lack of demonstrable progress on key macroeconomic reforms.

“India highlighted that Pakistan’s tax collection as a share of GDP declined from 13 per cent in FY18 to 9.2 per cent in FY23 and continues to remain way lower than the Asia and Pacific average of about 19 per cent. However, there has been significant increase in defence spending in the same period,” said a source.

According to the source, this points to the possibility of diversion of funds made available to the country by external agencies — including from IFIs, especially those that are made available by fungible debt financing, through instruments such as Policy Based loans, for increased defence spending.

“India expects the ADB management to adequately ring-fence the ADB financing, to prevent any such misuse,” the source said.

Further Pakistan’s poor track record of implementation stems from the military’s deeply entrenched interference in economic affairs, posing risks of policy slippages and reversal of reforms as has been witnessed in the past. “Even when a civilian government is in power now, the army continues to play an outsized role in domestic politics and extends its tentacles deep into the economy,” he said while adding that the situation has not changed for the better; rather the Pakistan Army now plays a leading role in the Special Investment Facilitation Council of Pakistan.

According to another source, India also highlighted that the economic fragility of the borrowing country (Pakistan) poses credit risks to the ADB too. Pakistan’s continued reliance on external debt raises concerns about the long-term sustainability of future exposures, especially in view of the high debt-to-GDP ratio and poor credit rating of the country. Therefore, “India urged ADB to be vigilant to safeguard the bank’s financial health and long-term prospects,” he said.

Published on June 4, 2025