India objects to ADB aid for Pakistan: Flags fund misuse fears; military spending under lens

NEW DELHI: India has lodged strong objections to any proposed financial support by the Asian Development Bank (ADB) to Pakistan, expressing serious concerns over the potential misuse of development funds for military purposes and Islamabad’s lack of commitment to meaningful economic reforms.

According to sources quoted by ANI, India conveyed its reservations to the ADB over Pakistan’s deteriorating fiscal performance, declining tax revenues, and suspected diversion of external funds to defence expenditure. The concerns come as ADB evaluates potential new financing programs for Pakistan, which is currently grappling with a severe economic crisis.

India highlighted a sharp fall in Pakistan’s tax collection, from 13% of GDP in FY2018 to just 9.2% in FY2023, well below the Asia-Pacific average of 19%. Despite this alarming decline in domestic revenue, Pakistan significantly increased defence spending over the same period.


“The linkage between Pakistan's increase in expenditure on its military, as opposed to development, cannot be fully explained solely in terms of its domestic resource mobilisation,” a source told ANI. India suspects that international financial institutions’ fungible debt instruments, particularly policy-based loans, may be enabling this diversion.

India has urged ADB management to implement safeguards and "adequately ring-fence" its financing to prevent development funds from being repurposed for non-developmental, especially military, uses.

India also questioned the effectiveness of previous multilateral programs, pointing out that Pakistan has turned to the International Monetary Fund for a record 24th bailout despite years of institutional support. “This track record raises serious doubts about both program design and the Pakistani authorities’ will to implement reforms,” said the source.

One of India’s major concerns is the entrenched influence of Pakistan’s military in the economy, which it sees as a structural barrier to sustainable reform. “Even when a civilian government is in place, the army continues to play an outsized role in domestic politics and extends its tentacles deep into the economy,” the source noted. India cited the military’s dominant role in Pakistan’s Special Investment Facilitation Council as a case in point.

On the governance front, India expressed alarm over Pakistan’s failure to meet critical FATF (Financial Action Task Force) obligations, particularly in prosecuting UN-designated terrorist leaders, curbing terror financing, and freezing related criminal assets.

India further argued that policy reforms in Pakistan remain largely externally driven and donor-dependent. “Policy reforms in Pakistan have been largely driven by external support from IFIs [international financial institutions], including ADB, in recent years,” the source said, warning this approach fosters dependency and lacks local ownership.

Beyond development effectiveness, India raised concerns about ADB’s financial exposure to Pakistan, given the country's poor credit rating, high debt-to-GDP ratio, and ongoing reliance on external debt. “India urged ADB to be vigilant to safeguard the bank's financial health and long-term prospects,” the source added.

India also underscored Pakistan’s destabilising impact on the region, calling its governance system “a continuing severe threat to regional peace and security.” The policy of cross-border terrorism, India said, not only harms regional security but increases macroeconomic and enterprise risks, factors that ADB must weigh when assessing funding proposals.

The ADB has not yet issued a formal response to India’s objections. However, the concerns raised could significantly complicate Pakistan’s efforts to secure fresh development funding at a time when its economic vulnerabilities are under intense global scrutiny.