Taking a tricky stance, India has batted for “stringent monitoring” of any emergency funds offered by the International Monetary Fund (IMF) to its financially beleaguered neighbour Pakistan, stressing that such funds should not be redeployed in direction of defence payments or reimbursement of loans from different international locations.

India’s place was put throughout to the IMF’s government board by its nominee, government director Krishnamurthy Subramanian, throughout a latest evaluate of an ongoing $3 billion short-term Stand-By Arrangement (SBA) granted to Pakistan by the Fund final July. India has normally abstained from voting on loans sought by Pakistan and did the identical final July when the SBA was authorized.

Stringent monitoring

In mid-January, when the board reviewed the mortgage, India’s consultant abstained from voting once more, following which the IMF launched a $700 million tranche to Pakistan. However, this time, the Indian authorities requested Mr. Subramanian to convey to the IMF board the necessity to put in place “checks and balances and ensure a stringent monitoring” of Pakistan’s utilisation of IMF cash.

“Such monitoring is imperative to ensure that funds received to meet development imperatives are not diverted towards defence spending and repayment of external debt owed to third countries,” India is learnt to have pressured to the IMF’s government board. The IMF and Mr. Subramanian didn’t reply to queries from The Hindu until the time of going to press.

Seeking extra funds

The growth assumes significance as Pakistan’s newly fashioned authorities, led by Prime Minister Shehbaz Sharif, is pursuing “immediate talks” with the IMF to hunt extra funding help, together with the $1.2 billion residual stability beneath the SBA which expires subsequent month, and past.

The IMF’s help had helped cash-strapped Pakistan stave off an imminent exterior funds disaster that it confronted final June when foreign exchange reserves had dwindled to simply $3.5 billion, barely sufficient to pay a month’s import invoice. Pakistan’s financial system — hit by extreme floods in 2022, exterior shocks, and sharp inflation — had contracted in 2022-23. (Its monetary yr runs from July to June.)

Ahead of the elections, IMF employees had met representatives of Pakistan’s main political events — the Pakistan Muslim League-Nawaz, Pakistan People’s Party, and Pakistan Tehreek Insaf — to hunt affirmation of their help for its lending programme that mandates vast disclosures, deficit objectives, and a number of reforms, corresponding to a market-determined change charge for its Rupee and tighter anti-corruption steps.

Long-term financing plan

By February, Pakistan’s foreign exchange reserves had improved barely to $8 billion, however had been nonetheless solely enough to cowl six weeks of imports. After final month’s basic election outcomes, Moody’s Investors Service reckoned that Pakistan’s exterior financing wants will stay excessive until at the very least 2026-27, which means that it’s going to want a longer-term financing plan after its present SBA from the IMF ends.

“Overall, uncertainty around Pakistan’s ability to quickly negotiate a new IMF programme after the current one expires in April 2024 remains very high. Pakistan’s government liquidity and external vulnerability risks will remain very high until there is clarity on a credible longer-term financing plan,” the worldwide scores main had cautioned.