India has vehemently opposed any Asian Development Bank financing support to Pakistan, raising serious concerns about potential misuse of development funds for military expenditure and questioning Pakistan’s commitment to economic reforms.
According to sources, India expressed deep reservations to the ADB about Pakistan’s deteriorating fiscal performance, declining tax collection, and suspected diversion of international development funds toward defence spending rather than development priorities.
India highlighted Pakistan’s alarming fiscal trends as evidence of misplaced priorities. Pakistan’s tax collection as a share of GDP plummeted from 13.0% in FY2018 to just 9.2% in FY2023 – far below the Asia-Pacific average of 19.0%. Despite this revenue decline, Pakistan significantly increased defence expenditure during the same period.
“The linkage between Pakistan’s increase in expenditure on its military, as opposed to development, cannot be fully explained solely in terms of its domestic resource mobilisation,” sources told ANI. India warned that this pattern suggests possible diversion of funds from international financial institutions, particularly through fungible debt financing instruments like Policy-Based Loans.
India urged ADB management to adequately ring-fence financing to prevent such misuse of development resources.
India questioned the effectiveness of previous ADB and IMF programs, noting that Pakistan has approached the International Monetary Fund for its 24th bailout program despite years of institutional support. This track record, India argued, calls into question both program design and implementation by Pakistani authorities.
Sources pointed to Pakistan’s military’s entrenched interference in economic affairs as a fundamental obstacle to sustainable reforms. “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,” India noted, highlighting the military’s leading role in Pakistan’s Special Investment Facilitation Council.
India expressed strong reservations about Pakistan’s governance system, describing it as “a continuing severe threat to regional peace and security.” The country’s policy of cross-border terrorism has worsened regional security and significantly escalated Pakistan’s macroeconomic risks, thereby heightening enterprise risks for the ADB.
India criticised Pakistan’s unsatisfactory progress on critical Financial Action Task Force (FATF) action items, particularly regarding terrorist financing investigations, prosecution of UN-designated terrorist group leaders, and freezing of criminal assets.
India argued that Pakistan’s heavy reliance on external support for policy reforms undermines local ownership and creates a dangerous dependency cycle. “Policy reforms in Pakistan have been largely driven by external support from IFIs, including ADB, in recent years,” sources said, warning this approach lacks sustainability.
Beyond development effectiveness, India raised concerns that Pakistan’s creditworthiness poses risks to ADB’s own financial health. Pakistan’s continued reliance on external debt, combined with its high debt-to-GDP ratio and poor credit rating, raises questions about the long-term sustainability of future exposures.
“India urged ADB to be vigilant to safeguard the bank’s financial health and long-term prospects,” sources said, emphasising the need for careful risk assessment given Pakistan’s economic fragility.
India’s comprehensive opposition comes as the ADB evaluates potential financing programs for Pakistan. The bank has not yet responded to India’s concerns, but the objections could complicate Pakistan’s efforts to secure additional development funding at a time when the country faces severe economic challenges.
India expects the ADB to closely monitor the implementation of any policy matrix to achieve intended outcomes and prevent misuse of development resources for non-development purposes. (ANI)
