India has lodged strong objections against the Asian Development Bank&rsquo;s (ADB) decision to approve a USD 800 million financial assistance package for Pakistan, citing apprehensions over possible diversion of development funds to military use and raising doubts over Pakistan&rsquo;s economic reform agenda.
According to individuals familiar with the matter, India conveyed its concerns to the ADB, highlighting what it described as Pakistan&rsquo;s worsening fiscal indicators and a substantial decline in tax revenue collection. It pointed out that Pakistan&rsquo;s tax-to-GDP ratio had dropped from 13.0% in the financial year 2018 to just 9.2% in 2023&mdash;considerably below the Asia-Pacific regional average of 19.0%.&nbsp;
Despite this downward trajectory in revenue generation, defence spending by Pakistan increased over 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 a news agency. India indicated that such a trend suggested the potential redirection of funds obtained from international financial institutions through instruments such as Policy-Based Loans.
India called on ADB management to establish stringent safeguards to prevent the misapplication of these resources. It also criticised the outcomes of earlier financial assistance initiatives, both by the ADB and the International Monetary Fund (IMF), noting that Pakistan has sought IMF assistance 24 times, including its current request. This repeated dependency, India stated, raised serious concerns about both the structure and implementation of these programmes by Pakistani authorities.
A key area of concern raised by India was the role of the military in Pakistan&rsquo;s economic decision-making processes. Even under civilian rule, India noted, the military remained deeply involved in governance and economic affairs, particularly pointing to its leadership of the Special Investment Facilitation Council.
"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 remarked, identifying this influence as a major impediment to enduring reform.
India further expressed alarm over what it described as systemic governance issues in Pakistan, calling the situation "a continuing severe threat to regional peace and security." The Indian side linked Pakistan&rsquo;s policy of cross-border terrorism to heightened instability in the region and increased macroeconomic volatility, asserting that this, in turn, raised the risk profile for development institutions like the ADB.
On the issue of anti-terrorism compliance, India pointed to Pakistan&rsquo;s failure to satisfactorily implement key items under the Financial Action Task Force (FATF) framework.&nbsp;
Specific shortcomings included insufficient progress in terror financing investigations, lack of prosecution of United Nations-designated terrorist leaders, and inadequate action in freezing illicit assets.
India also warned that the reliance on external funding for policy reform efforts created a weak foundation for sustainable progress. "Policy reforms in Pakistan have been largely driven by external support from IFIs, including ADB, in recent years," sources said, suggesting that this approach erodes local accountability and entrenches financial dependency.
In addition to concerns over development impact, India questioned Pakistan&rsquo;s financial viability and the associated risks for ADB. Citing Pakistan&rsquo;s significant debt burden, reliance on foreign loans, and unfavourable credit ratings, India urged the bank to exercise caution.&nbsp;
"India urged ADB to be vigilant to safeguard the bank's financial health and long-term prospects," sources added, urging a thorough risk assessment given the fragile state of Pakistan&rsquo;s economy.
Despite India&rsquo;s detailed opposition, the ADB confirmed on Tuesday that it had approved a financing arrangement worth USD 800 million under the Resource Mobilisation Reform Programme.&nbsp;
The announcement was corroborated by Khurram Schehzad, advisor to Pakistan&rsquo;s finance minister, who shared the development via social media, stating that the package comprises a USD 300 million policy-based loan and a USD 500 million programme-based guarantee.
The ADB, in its official statement, clarified that this support is part of subprogramme 2 under the &ldquo;Improved Resource Mobilisation and Utilisation Reform Programme.&rdquo; It includes a USD 300 million policy-based loan and the ADB&rsquo;s first policy-based guarantee, which could unlock up to USD 1 billion in financing from private commercial banks.
Emma Fan, ADB&rsquo;s country director for Pakistan, said, "Pakistan has made significant progress in improving macroeconomic conditions. This programme backs the government's commitment to further policy and institutional reforms that will strengthen public finances and promote sustainable growth."
The bank indicated that the programme aims to implement wide-ranging reforms in tax policy and administration, public expenditure management, and cash handling systems. It also aims to drive digital transformation, enhance private sector growth, and support investment facilitation.&nbsp;
These initiatives are intended to help Pakistan manage its fiscal deficit and debt levels while expanding fiscal space for social and development priorities.
Citing information from officials at Pakistan&rsquo;s Ministry of Finance, a national daily reported that the programme is designed to boost domestic revenue mobilisation and promote financial stability through reform measures.&nbsp;
The intended outcomes include a more efficient tax system, increased government revenue, and a stronger foundation for fiscal discipline. The programme is also seen as an important milestone toward achieving economic self-sufficiency.
The ADB has not yet publicly addressed India&rsquo;s objections. However, the concerns raised may influence future deliberations over Pakistan&rsquo;s access to development finance at a time when the country continues to grapple with serious economic pressures.&nbsp;
India has insisted that any financial assistance from ADB must be closely monitored to ensure that all resources are directed exclusively toward development-oriented outcomes.
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India raises concerns over Pakistan's ADB funding, citing misuse risks, military spending, and economic instability.

India Opposes ADB’s $800M Loan Approval for Pakistan

India raises concerns over Pakistan's ADB funding, citing misuse risks, military spending, and economic instability.

June 5, 2025 | 24:29 IST

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