The International Monetary Fund (IMF) has transferred the second tranche of special drawing rights (SDR 760 million) equivalent to $1.023 billion to Pakistan, as confirmed by the State Bank of Pakistan (SBP) on Wednesday. This significant disbursement falls under the Extended Fund Facility (EFF) programme—an initiative designed to stabilise economies facing balance-of-payment difficulties.

The SBP noted that the amount will be reflected in foreign exchange reserves for the week ending May 16, 2025, enhancing Pakistan’s financial position and supporting its ongoing economic recovery measures.

India Raises Concern Amid IMF Approval

The approval of this latest tranche came during an IMF Executive Board meeting held on Friday, where the board gave the green light despite India’s strong objections. India, during the discussions, highlighted Pakistan’s “poor track record” of financial management and expressed worries about the potential misuse of IMF funds for state-sponsored cross-border terrorism.

Although India voiced its opposition, rules of the IMF do not allow a formal "no" vote. Therefore, India abstained from the vote, which allowed the fund’s release to proceed.

This development has sparked diplomatic and geopolitical concerns, especially in light of the ongoing tensions between India and Pakistan.

Breakdown of IMF’s Funding to Pakistan

The $1.02 billion is part of a broader $7 billion IMF package granted under the EFF programme. According to Reuters, Pakistani officials stated that the IMF has approved this cash release after completing its first review of the ongoing programme. With the latest approval, Pakistan has now received $2 billion out of the $7 billion pledged under this facility.

In addition to the EFF funds, the IMF also sanctioned $1.3 billion under the Resilience and Sustainability Facility (RSF). This new facility aims to assist countries in building long-term resilience to climate-related risks and improve investment planning.

IMF’s Statement on Pakistan’s Economic Reform

The IMF, in a social media post on X, confirmed the approval, stating:

“IMF Board approved the first review of Pakistan’s economic reform program under the EFF, enabling a disbursement of ~ $1 billion, reflecting strong programme implementation which has contributed to continuing economic recovery.”

Additionally, the IMF announced the approval of a $1.4 billion arrangement under the RSF, which is expected to enhance Pakistan’s capacity to address natural disasters and promote climate adaptation measures. This marks a shift in the IMF’s engagement towards sustainable development and climate resilience in vulnerable economies.

Strengthening Pakistan’s Forex Reserves

With the disbursement of the latest tranche, Pakistan’s central bank reserves are expected to get a major boost, providing the country with much-needed breathing room to manage its external debt and trade obligations.

The SBP wrote in its official X (formerly Twitter) post:

“SBP has received the second tranche of SDR 760 million (US$ 1,023 million) from the IMF under the EFF program. The amount will be reflected in SBP’s foreign exchange reserves for the week ending on 16th May 2025.”

India’s Stand and Global Implications

India’s concerns were centred on the alleged use of foreign funds by Pakistan to support extremist activities, particularly those aimed at destabilising the region. This is not the first time India has raised red flags about Pakistan’s misuse of financial aid and international funding.

In various international forums, India has urged institutions to impose stricter oversight and ensure transparency when disbursing funds to countries with questionable financial histories.

Despite these warnings, the IMF proceeded, citing Pakistan’s adherence to economic reform targets and policy frameworks laid out under the EFF.

The Broader Economic Picture in Pakistan

Pakistan has faced a challenging economic environment in recent years, including high inflation, currency depreciation, and external debt pressures. The IMF’s support is intended to:

• Stabilise macroeconomic indicators

• Strengthen public finances

• Support the country’s reform agenda in areas such as taxation, energy, and governance

The EFF arrangement, first signed in 2019, aims to support Pakistan’s efforts to implement structural reforms that will pave the way for sustainable and inclusive growth.

What the RSF Means for Pakistan’s Climate Future

The approval of the Resilience and Sustainability Facility signals the IMF’s growing emphasis on climate financing. Under the RSF, $1.4 billion will be allocated to support Pakistan’s climate resilience efforts, including:

• Enhancing disaster preparedness

• Promoting renewable energy and sustainable infrastructure

• Improving climate-resilient agriculture

• Strengthening public investment frameworks to cope with future climate shocks

This financial package is particularly significant for Pakistan, which has faced devastating floods and extreme weather events in recent years, leading to both human and economic losses.

Conclusion: A Dual-Faceted IMF Engagement with Pakistan

The IMF’s dual-track support to Pakistan—through the EFF and RSF programmes—represents a strategic shift in how international institutions balance economic stabilisation with sustainability goals.

While India’s objections cannot be overlooked, the IMF appears focused on rewarding economic discipline and forward-looking reforms. The coming months will reveal whether Pakistan can maintain its trajectory of reforms and responsibly utilise the funds to benefit its population.

As of now, the IMF's financial backing has reinforced investor confidence and strengthened Pakistan’s foreign reserves, at least in the short term. Long-term success, however, will depend on how effectively the country implements structural changes and ensures transparency in fund utilisation.

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