US dangles IMF aid for military rights in Pakistan

The International Monetary Fund (IMF) is withholding the release of a US$1 billion tranche under an Extended Fund Facility (EFF) to Pakistan until the government closes commercial bank accounts held by the armed forces and other state entities and remits $17 billion worth of public funds into a single treasury account. The IMF is also demanding more central bank autonomy to release the facility.

The financial assistance drama has a sharp geopolitical twist. The United States, currently the single largest financial contributor to the IMF, has reportedly had a hand in the reform demands, using IMF monetary policy as a bargaining chip to force cash-strapped Islamabad to agree to the Biden administration’s counterterrorism operations in neighboring Afghanistan.

Pakistan and the IMF have been deadlocked over terms of reviving a $6 billion EFF facility, including over IMF demands for Prime Minister Imran Khan’s government to grant full autonomy to the State Bank of Pakistan, the central bank, which is now seen as captive to politicians. The two sides reached an agreement in March but Islamabad has been perceived since to stall on implementing the measure.

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