India has voiced strong opposition to the Asian Development Bank's (ADB) decision to provide an $800 million financing package to Pakistan. Government sources indicate that India fears these funds could be misused, particularly given Pakistan's increasing defense expenditure, declining tax-to-GDP ratio, and a perceived lack of progress on essential macroeconomic reforms. Despite India's objections, the ADB approved the package on Tuesday.
India's concerns revolve around the potential diversion of ADB resources towards military spending rather than developmental projects. It has been pointed out that Pakistan's tax collection as a share of GDP has fallen from 13% in fiscal year 2018 to 9.2% in fiscal year 2023. This figure remains significantly lower than the Asia and Pacific average of approximately 19%. Simultaneously, Pakistan's defense spending has reportedly increased, raising suspicions that funds from international financial institutions might be redirected.
Furthermore, India has emphasized that Pakistan's economic fragility poses credit risks to the ADB. The country's reliance on external debt raises concerns about the long-term sustainability of future exposures, especially considering its high debt-to-GDP ratio and poor credit rating. India has urged the ADB to remain vigilant in safeguarding the bank's financial health and long-term prospects.
In addition to concerns about fund diversion and economic stability, India has raised the issue of cross-border terrorism. It has flagged cross-border terrorism as a significant risk to Pakistan's macroeconomic and security situation. India has also cited Pakistan's alleged failure to act on key mandates of the Financial Action Task Force (FATF), including freezing assets of UN-designated terrorist groups. Following a recent terror attack, India has been actively exposing Pakistan's alleged support for terrorism at global lending bodies, urging them to reconsider future funding.
The approved ADB package includes a $300 million loan for the Improved Resource Mobilisation and Utilisation Reform Programme and a $500 million policy-based guarantee. The ADB believes this will help strengthen fiscal sustainability and improve public financial management in Pakistan. However, India remains skeptical, pointing to Pakistan's history of repeated bailouts from the International Monetary Fund (IMF) as evidence of failed economic reforms. It's worth noting that this isn't the first time India has attempted to block financial aid to Pakistan; they previously tried to do so at the IMF.
The ADB has defended its decision, emphasizing its neutrality and asserting that Pakistan, as a founding member, has the right to secure loans as long as it fulfills the agreed conditions. However, India's continued opposition highlights the ongoing tensions and mistrust between the two nations, with India determined to prevent any potential misuse of funds that could negatively impact regional security and stability.
