The Indian government has vehemently opposed the Asian Development Bank’s (ADB’s) $800 million loan to Pakistan. According to government sources, India shared deep concerns regarding the potential misuse of ADB resources, particularly in light of Pakistan’s increasing defence expenditure, its declining tax-to-GDP ratio, and the lack of demonstrable progress on key macroeconomic reforms. India, according to government sources, told ADB that the economic fragility of Pakistan also poses credit risks to the multilateral agency.
The ADB on Wednesday approved an $800 million package to strengthen fiscal sustainability and improve public financial management in Pakistan. The package includes a policy-based loan of $300 million, and ADB’s first ever policy-based guarantee of up to $500 million, which, according to a statement by ADB, is expected to mobilise financing of up to $1 billion from commercial banks.
According to an ADB statement, the program supports far-reaching reforms to improve tax policy, administration, and compliance, while enhancing public expenditure and cash management. It also promotes digitalization, investment facilitation, and private sector development.
While approving the loan, ADB said that Pakistan has made significant progress in improving macroeconomic conditions. “This program backs the government’s commitment to further policy and institutional reforms that will strengthen public finances and promote sustainable growth,” ADB Country Director for Pakistan Emma Fan said in a statement.
Lodging protest against the extension of the loan, the Indian government said that the linkage between Pakistan's increased expenditure on its military, as opposed to on development, cannot be fully explained solely in terms of its domestic resource mobilization.
Sources said India highlighted that Pakistan's tax collection as a share of GDP declined from 13.0% in FY2018 to 9.2% in FY2023 and continues to remain way lower than the Asia and Pacific average of about 19.0%. “However, there has been significant increase in defense spending in the same period,” said the Indian government.
India further said Pakistan's poor track record of implementation stems from the military's deeply entrenched interference in economic affairs, posing risks of policy slippages and reversal of reforms as has been witnessed in the past.
India expressed strong reservations about Pakistan’s existing governance system, which poses a continuing severe threat to regional peace and security. It also contended that the progress on implementation of the most critical FATF action items relating to terrorist financing investigations and prosecution of leaders of UN-designated terrorist groups and freezing and confiscation of criminal assets, is highly unsatisfactory.
Pakistan is a founding member of ADB. Since 1966, ADB has committed more than $52 billion in public and private sector loans, grants, and other forms of financing to promote inclusive economic growth and improve the country’s infrastructure, energy and food security, transport networks, and social services.