India Objects to ADB Loan to Pakistan Over Misuse Fears
- India warns ADB of potential misuse of Pakistan’s $800M loan amid rising defence spending.
- Concerns raised over Pakistan’s falling tax-to-GDP ratio and repeated reliance on bailouts.
- New Delhi urges ADB to closely monitor fund usage and safeguard its financial interests.
India has formally raised strong objections to the Asian Development Bank’s (ADB) recent approval of an $800-million funding programme for Pakistan, voicing serious concerns over the potential misuse of funds in light of Islamabad’s rising defence spending and weakening domestic resource mobilisation.
The ADB, on June 3, cleared the Improved Resource Mobilization and Utilization Reform Program Subprogram 2, which includes a $300 million policy-based loan and a policy-based guarantee of up to $500 million to mobilise an additional $1 billion from commercial banks. The programme is intended to help Pakistan strengthen its public finance systems.
However, senior Indian government officials have cautioned that such fungible resources may be indirectly enabling Pakistan’s growing military expenditure, thereby diverting funds from developmental objectives. New Delhi highlighted a disturbing fiscal trend: Pakistan’s tax-to-GDP ratio has fallen from 13.0% in FY2018 to 9.2% in FY2023 significantly below the Asia-Pacific average of 19%. Despite this sharp decline in domestic revenue generation, Pakistan has continued to raise defence spending.
“The ADB must ensure its financing is not misused”, a senior Indian official stated. “There’s a growing mismatch between Pakistan’s increasing military expenditure and its stagnating tax base, which raises serious doubts about the direction of its fiscal priorities”.
India also questioned the effectiveness of previous financial support extended to Pakistan by multilateral institutions such as the ADB and the International Monetary Fund (IMF). Officials noted that had earlier programmes succeeded in fostering a robust macroeconomic environment, Pakistan would not have had to approach the IMF for a 24th bailout.
“The repeated reliance on bailouts indicates weak programme design, ineffective monitoring, and lack of credible implementation by Pakistan”, an official added.
India further stressed that Pakistan’s historically poor track record in implementing economic reforms is exacerbated by its military’s deep-rooted involvement in economic policymaking. Even under a civilian government, the army maintains an outsized role in domestic governance and extends its influence into key sectors of the economy.
“Policy reversals and slippages remain a significant risk, which threatens the long-term success of reforms backed by institutions like ADB”, the official said.
India has urged the ADB to maintain close oversight on the implementation of the policy matrix associated with the loan, to ensure that the intended outcomes are achieved and funds are used transparently and effectively.
New Delhi also flagged Pakistan’s growing external debt burden and poor credit rating as potential risks to the ADB itself. The country’s economic fragility, high debt-to-GDP ratio, and repeated bailouts raise questions about the long-term sustainability of future lending.
“In light of these concerns, India calls on the ADB to exercise utmost vigilance in protecting its financial integrity and ensuring that funds are used strictly for developmental goals”, the official concluded.
