Context:

On May 9, 2025, the International Monetary Fund (IMF) Executive Board approved an immediate disbursement of $1 billion (around Rs 8,500 crore) to Pakistan. This is part of the 37-month Extended Fund Facility (EFF), approved on September 25, 2024. The total EFF package is $7 billion, and with this tranche, Pakistan has received $2.1 billion so far.

What is the EFF?

• The Extended Fund Facility is a loan program that helps countries with serious medium-term balance of payments problems caused by structural weaknesses. These problems can include poor infrastructure, low investment in education, weak banking systems, and excessive borrowing by the government.
• Unlike grants or aid, EFF loans must be repaid. The term "extended" refers to the longer time countries are given to repay the loan and implement reforms. The IMF uses the EFF to support countries making long-term changes needed for economic stability and growth.

Why Pakistan is Eligible?

Pakistan has experienced prolonged economic decline despite its aspirations of regional military dominance. Since the 1980s, successive governments have failed to sustain economic growth. Pakistan’s GDP has remained stagnant over the past decade, registering $338 billion in 2023—lower than its 2017 figure. At the same time, inflation has escalated dramatically: from 10.7% in 2020 to 23.4% in 2024, with a peak of 29.1% in 2023. Over five years, the price level for the average consumer more than doubled.

The main reasons behind Pakistan’s economic struggles are:

• Mismanagement by successive governments
• Rapid population growth
• Low savings rate
• Poor investment in infrastructure
• Low participation of women in the workforce

To stay afloat, Pakistan has borrowed heavily—not just from the IMF (28 loans in 35 years)—but also from China, the UAE, Saudi Arabia, the Paris Club, Islamic Development Bank, Asian Development Bank, and Nordic Development Fund.

The Latest Disbursement and Reform Measures:

The IMF’s decision to release the latest tranche follows a formal review of Pakistan’s policy reforms. The IMF acknowledged “significant progress” in stabilising the economy and rebuilding market confidence amid global economic uncertainties.

Key factors influencing the IMF’s positive assessment include:

• A marked reduction in government borrowing
• Historic disinflation, with inflation falling to 0.3% in April 2025
• Improved foreign exchange reserves
• Reforms like the Agricultural Income Tax and consistent implementation of the FY2025 budget

India’s Objection

India strongly opposed the IMF’s decision because of Pakistan’s recent military actions and history of misusing funds. While countries cannot vote against such decisions, India abstained and warned that Pakistan might misuse the money for financing cross-border terrorism.

Conclusion

The IMF’s support highlights Pakistan’s urgent need for economic reform and external help. While the funding offers short-term relief, long-term progress depends on how effectively Pakistan carries out structural reforms and ensures accountability, especially given regional tensions with India.