By In a significant diplomatic development, India is set to raise strong objections during the International Monetary Fund (IMF) board review regarding Pakistan’s plan to invest nearly $600 million in the New Development Bank (NDB), established by the BRICS nations. The issue is expected to be highlighted when the IMF board considers the second tranche of the $7 billion bailout package that was approved for Pakistan last year.
The New Development Bank (NDB), also known as the BRICS Bank, was formed in 2014 by Brazil, Russia, India, China, and South Africa with an aim to finance infrastructure and sustainable development projects in emerging economies. Pakistan now plans to purchase a 1.1% stake in the bank, which will require an investment of approximately $582 million. This development has triggered serious concerns in India, especially as Pakistan is currently under a massive economic crisis and heavily dependent on international financial assistance from the IMF.
India’s Concerns Over Pakistan’s Investment Plan
India’s opposition stems from the fact that Pakistan is receiving IMF assistance to stabilize its struggling economy. India believes that using IMF’s financial aid indirectly to fund an investment in a multilateral bank like the NDB raises serious questions about the purpose of the IMF bailout fund. This issue could further derail the confidence of international lenders in Pakistan’s commitment to fiscal reforms.
India is expected to formally red-flag Pakistan’s move when the IMF’s board considers the disbursement of the second tranche of the $7 billion bailout package. The IMF had initially approved this bailout in September 2024 to address Pakistan’s economic crisis, stabilize the currency, and resolve power sector debts. The first tranche of $1.1 billion was disbursed in the same month. Now, the IMF is reviewing Pakistan’s economic progress before releasing the second tranche.
India’s primary concern is that Pakistan is utilizing its financial resources for purposes that do not align with the bailout’s original objectives. As Pakistan has a history of economic instability, diverting millions of dollars into a BRICS Bank stake at a time when it is struggling to clear its existing power and energy sector debts appears to be financially unwise.
Pakistan’s Motivation Behind Investing in NDB
Pakistan’s desire to secure a 1.1% stake in the New Development Bank (NDB) has been seen as an attempt to enhance its international standing and strengthen its ties with the BRICS nations. Currently, the NDB is headquartered in Shanghai, China, and aims to promote sustainable infrastructure development in developing nations.
Countries like Bangladesh, Egypt, and the United Arab Emirates (UAE) have already acquired stakes of 1.7%, 2.2%, and 1.1% respectively. Following this, Pakistan showed a keen interest in joining the NDB as a stakeholder. However, the timing of this investment plan has raised questions since Pakistan is struggling with a financial crisis and is largely dependent on external financial support.
According to sources within the Pakistan Finance Ministry, Islamabad believes that investing in the NDB will provide long-term financial and development benefits. However, India has questioned the source of funds, especially as Pakistan still owes billions of dollars to international creditors and remains under an IMF bailout package.
IMF’s Role and India’s Expected Objection
The IMF board is scheduled to conduct the first major review of the $7 billion bailout that was sanctioned to Pakistan in September 2024. This review will assess Pakistan’s adherence to the bailout conditions, including economic reforms, reduction of budget deficits, and strengthening the power sector. The IMF also expects Pakistan to avoid excessive external spending during the bailout period.
Given Pakistan’s proposal to invest $582 million in the NDB, India is expected to formally object during the second tranche consideration. India has historically refrained from voting on IMF loan approvals for Pakistan, but this time the scenario is different. The decision to divert financial resources towards an international bank stake, while still depending on IMF loans, is considered contradictory and financially irresponsible.
Sources indicate that India’s objection could potentially delay the release of the second tranche or compel the IMF to revisit its terms. The IMF might also seek clarifications from Pakistan regarding the source of the $600 million fund for the NDB investment.
Pakistan’s Economic Challenges Amid Bailout
Pakistan continues to face severe financial challenges despite the IMF’s assistance. The country is currently negotiating an additional $4.47 billion loan from commercial banks to reduce its power sector debt, which is now estimated to cross $8 billion. Additionally, inflation in Pakistan has reached double digits, leading to increasing public unrest.
As part of the IMF’s bailout conditions, Pakistan had agreed to implement economic reforms, reduce fiscal deficit, control subsidies in the power sector, and increase tax revenues. However, the latest decision to invest in the BRICS Bank appears to contradict the fiscal discipline recommended by the IMF.
India is likely to emphasize that Pakistan’s financial priorities should focus on economic recovery, and not on foreign investments in global banks. Critics have also pointed out that if Pakistan can afford $600 million for a BRICS Bank stake, it raises questions on why it continues to seek IMF financial assistance.
What Happens Next?
The IMF’s review of Pakistan’s economic progress is expected to conclude in the next few weeks. During this time, India is likely to present a formal objection questioning the validity of Pakistan’s plan to fund the NDB stake while receiving IMF financial assistance. The IMF board, consisting of representatives from 190 countries, will carefully evaluate the situation before making a decision on the second tranche disbursement.
If the IMF sides with India, it could either delay the $1.1 billion tranche or demand transparency from Pakistan regarding the source of its NDB investment fund. Conversely, if the IMF overlooks India’s objection, it may undermine the credibility of IMF bailout programs, allowing financially unstable countries to divert loan funds towards foreign investments.
For now, Pakistan remains under close IMF supervision as it struggles to stabilize its economy. India’s intervention, however, could further complicate Pakistan’s efforts to secure its next tranche of financial assistance. The outcome of the IMF review will determine whether Pakistan can proceed with its NDB investment or face delays in its bailout disbursement.
