Pakistan's Economy On Tenterhooks As IMF Adds Loan Riders

Officials said the riders have been brought in to ensure the loan money is not misused by Pakistan, which allegedly has, for many decades, been diverting assistance from priority sectors and not taking steps to bolster its own state revenues.

“This decision allows for an immediate disbursement of around US$ 1 billion (Special Drawing Rights US$ 760 million), bringing total disbursements under the arrangement to about US$ 2.1 billion (SDR 1.52 billion),” said the IMF in its official report. The Special Drawing Right or SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries, and can be exchanged for freely usable currencies.

IMF Riders

As part of the new riders, the IMF has mandated that Pakistan needs to pass a new federal budget for the financial year 2025-26, which will be in line with the IMF targets by June 2025. An amount of (Pakistani) Rs 1.07 trillion, out of the Rs 17.6 trillion budget, will have to be earmarked for developmental spending. Islamabad will also have to publish a governance action plan, based on the IMF's Governance Diagnostic Assessment prescription, to outline reform measures.

Moreover, to maintain energy tariffs at cost recovery levels, Islamabad will have to issue a notification outlining the annual electricity tariff — which may push up the cost of energy, and impact income tax collections. Besides, by June 2026, it will have to publish the post-2027 financial sector strategy to maintain stability.  

Pakistan has sought IMF assistance as many as 25 times. Earlier this month, ratings agency Moody’s noted that an escalation in tension with India would hurt the country's fragile economy, just when it is showing signs of some stability.

"We think the IMF loan to Pakistan is not well thought through and this will only be used to support terror network there. Hope that the new conditions imposed by IMF will strictly be monitored and no further bailout is given till Pakistan dismantles its terror network," Gopal Krishna Agarwal, BJP's National Spokesperson on economic affairs told The Secretariat.

Bilateral Trade Woes

The halt in bilateral trade between the two countries has also started to hurt Pakistan’s economy. Though trade between India and Pakistan stood at a meagre US$ 0.5 million prior to the Pahalgam attack, the complete halt of imports and exports has hit the common citizens of the country.

That apart, indirect trade is estimated to be close to US$ 10 billion.

India’s exports to Pakistan comprise cotton, food products, organic chemicals, edible vegetables, coffee, tea, spices, pharmaceuticals, among other items — considered fairly essential goods.

“Pakistan stands to lose considerably, as the country depends on India primarily for spices and pharmaceuticals. Though the goods will now be rerouted through other countries, it will add to the cost. It will become a high-cost economy,” Arun Goyal, trade expert and Director, Academy of Business Studies. He added that in many ways, the development could be “suicidal” for Pakistan. 

In contrast, India imports from Pakistan consist of black salt, figs, fruits and nuts, which are "non-essential". New Delhi has increased its vigilance to ensure no Pakistani goods are rerouted into India. “The impact of this will be nil on the Indian economy,” the source said.

Agarwal noted that Pakistan economy, which is in doldrums has a high dependence on Indian trade and "this standoff in trade restrictions by India will be major blow to Islamabad."  

According to Policy Circle, for Pakistan, peace is no longer just preferable — it is indispensable. “The country teeters on the edge of economic collapse, and any prolonged conflict with India could push it into the abyss,” it said.  

All Eyes On FATF

While the IMF loan has come as a relief to Pakistan, the Financial Action Task Force (FATF) will hold its plenary meeting next month. India is set to push FATF to add Pakistan to its list — which is expected to have a brutal impact on its economy.

FATF is an intergovernmental body aimed at maintaining global stability by monitoring terror financing and money laundering.

Sources said the killing of Pakistan’s Lashkar-e-Taiba (LeT) affiliated terrorist Razaullah Nizamani alias Ghazi Abu Saifullah Khalid — who is related to LeT co-founder Hafiz Saeed — after Operation Sindoor, may serve as Islamabad's message to the world community that it is serious in weeding out extremism.