Did India Try to Block Pakistan’s ADB Funding? The Real Story

Did India Try to Block Pakistan’s ADB Funding? The Real Story
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India, Pakistan, and the ADB: Tensions Rise After Pahalgam Attack

In the wake of heightened tensions after the recent terror attack in Pahalgam, which resulted in the tragic loss of 26 lives, India is said to have taken a firm stance by urging the Asian Development Bank (ADB) to stop its financial support to Pakistan.

As reported by sources quoted in several media, Finance Minister Nirmala Sitharaman made this request in a meeting with ADB President Masato Kanda on the margins of the 58th ADB Annual Meeting held in Milan, Italy.

Pahalgam Attack Fallout: India Seeks to Isolate Pakistan Financially

India's demand is being interpreted as a straight reaction to the reported Pakistan-based terror group involvement in the Pahalgam attack. New Delhi has always been suggesting "cross-border linkages" in the incident, which has been strongly rejected by Islamabad. 

India has, notwithstanding Pakistan's rejection, been aggressively seeking diplomatic actions to single out its neighbor on international platforms.

The reported decision to pursue the suspension of ADB aid is also part of a larger strategy by India to put pressure on Pakistan. India is said to be talking with various European countries to get them to support stricter regulation of international funds being sent into Pakistan.

Additionally, there are indications that India will seek to go to the Financial Action Task Force (FATF) in order to advocate for Pakistan's re-listing on the grey list, something that would greatly affect Pakistan's access to international finance.

Pakistan's Economy at Risk Amid Aid Suspension Push

The timing of this is significant, particularly in light of Pakistan's current economic climate. The nation obtained a US$7 billion bailout package from the International Monetary Fund (IMF) in the past year and a US$1.3 billion climate resilience loan in March. 

Any interruption in financial assistance from leading institutions such as the ADB could further deepen Pakistan's already weak economic condition.

International rating agency Moody's had just warned that any protracted escalation of tensions with India would seriously damage the economy of Pakistan by destabilizing external financing and putting pressure on its foreign exchange reserves, which are at present at a vulnerable level.

Indus Treaty Review

India's foreign exchange reserves, on the other hand, are healthy, supported by solid public investment and robust private spending. Nevertheless, Moody's also estimated that higher defense spending because of the increased tensions may set India's fiscal consolidation trajectory by a small margin.

This supposed request to the ADB is topped by other punitive actions reportedly being considered by India, such as re-examining the Indus Waters Treaty and additional diplomatic pressure at global forums. 

All of this remains fluid, and promises from the Indian government and the ADB on this particular request were first held in abeyance. Later denials from both parties, however, established that a formal request of this nature had not been made during the Milan meeting.

As the denials failed to take root, the original reports brought focus to the elevated tensions between the two countries post-Pahalgam attack and India's persisting attempts at holding Pakistan to account for cross-border terrorism. 

The attention then turns to the other possible diplomatic and economic actions India can consider and the response of the international community to deteriorating conditions.

Final Thought

In spite of early reports of India asking the ADB to suspend assistance to Pakistan after the Pahalgam attack, both sides have denied that any such official request had been made. India continues to look for diplomatic pressure and explore other options in the midst of increased tensions.

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