The question of whether Pakistan will be added back to the Financial Action Task Force (FATF) grey list has once again come to the forefront. Recent terror attacks in Kashmir, including the tragic April 22 incident in Pahalgam that claimed the lives of 26 tourists, have prompted India to ramp up diplomatic and financial measures against Pakistan. The Indian government is now pushing international financial institutions to reconsider their funding to Pakistan, while also advocating for Pakistan’s re-inclusion in the FATF grey list.
India’s push at the IMF
On Friday (May 9), India’s executive director at the International Monetary Fund (IMF) is expected to present the country’s stance on a 1.3-billion-dollar loan to Pakistan. Foreign Secretary Vikarm Misri stated at a news conference that India would make its position clear during the IMF board meeting. “We have an executive director at the IMF. Tomorrow (Friday) there is a meeting of the board of the IMF, and I’m sure that our executive director will put forward India’s position,” Misri remarked.
According to a senior government official, India’s approach to multilateral development banks (MDBs), including the World Bank, IMF, and Asian Development Bank (ADB), aims to curb financial flows that potentially support terror activities in Pakistan. “We will flag India’s concerns to the IMF, World Bank, ADB, and other multilateral agencies. There needs to be a review of development funding to Pakistan due to links with terror financing,” the official said on condition of anonymity.
Financial scrutiny of Pakistan
The IMF’s Executive Board will meet on May 9 to evaluate the financial aid package extended to Pakistan, including a 7-billion-dollar aid plan approved in September 2024. The latest review will determine the disbursement of approximately 1 billion dollars contingent upon Pakistan’s performance review. The World Bank has committed up to 50 billion dollars for nearly 400 projects, including loans for climate resilience and regional development.
What is FATF
The Financial Action Task Force (FATF) is an intergovernmental body established in 1989 by the G-7 nations during a meeting in Paris. It acts as the global watchdog for money laundering and terrorist financing. Initially, its primary objective was to combat money laundering, but after the 9/11 attacks in the US, its mandate expanded to include countering the financing of terrorism. In 2012, it further incorporated measures to prevent the financing of weapons of mass destruction (WMD).
Pakistan was placed on the grey list in 2018, remaining there for four years as it struggled to meet the FATF’s stringent requirements. However, after implementing substantial reforms and taking effective steps to curb money laundering and terrorist financing, the FATF acknowledged Pakistan’s progress in October 2022 and announced its removal from the list.
Who are the members and observers?
The FATF has 39 members, including major financial centers from across the globe. Member countries include India, the United States, the United Kingdom, China, France, Germany, Saudi Arabia, and others. The European Commission and the Gulf Cooperation Council are also members. Additionally, the FATF has observer organisations like the Asian Development Bank (ADB), International Monetary Fund (IMF), Interpol, World Bank, and the United Nations Office on Drugs and Crime (UNODC). India joined FATF with ‘observer’ status in 2006 and became a full member in 2010.
Indian measures post-Pahalgam attack
Following the Pahalgam attack, India has intensified its stance against Pakistan, including suspending the Indus Waters Treaty and imposing visa restrictions.
India’s financial strike on Pakistan is aimed at throttling support for its cross-border terrorism and undercutting Islamabad on the world stage.
A government source told PTI that New Delhi will be asking global multilateral agencies to review their financial support to Islamabad. “We will be asking all multilateral agencies to review the loans and support to Pakistan,” a government source told PTI.
AIMIM chief Asaduddin Owaisi has also called for Pakistan’s return to the FATF grey list, citing its continued support for terrorism. “Where will the water go after the Indus Waters Treaty was kept in abeyance? It has to be stored somewhere,” Owaisi pointed out while supporting the government’s decision.
Impact of being on the grey list
When Pakistan was on the FATF grey list, it faced increased monitoring and potential sanctions, affecting its ability to secure international financial aid. The World Bank and other agencies were hesitant to fund projects, given the heightened risk of money laundering and terror financing. The removal from the list in 2022 enabled Pakistan to access funds from the IMF and other financial institutions, but the recent escalation of violence may jeopardise this progress.
India urges ADB to stop aid to Pakistan
India has urged the Asian Development Bank (ADB) to “go slow” on extending financial support to Pakistan, as part of New Delhi’s broader strategy to curb terror financing and limit Pakistan’s access to global economic resources. The Indian government is also making diplomatic efforts to isolate Pakistan internationally on the issue of terrorism.
Domestic measures to curb resources
Within India, authorities have taken unprecedented steps by closing the gates of the Salal and Baglihar Dams for the first time since 1960, cutting off water flow to Pakistan. This move aims to disrupt Pakistan’s water supply for agriculture and power generation.
Data from Pakistan’s Indus River System Authority (IRSA) shows a significant drop in the water flow of the Chenab river at Marala Headworks following the closure of upstream dams. Before the terror attack, on April 20, 2025, upstream discharge was recorded at 23,980 cubic seconds and downstream at 17,480 cubic seconds. However, by April 25, these numbers had fallen to 16,087 cs and 8,087 cs, respectively, marking a 33 per cent reduction upstream and 54 per cent downstream.
This scarcity is expected to disrupt agriculture, food supply chains, and agro-industries, ultimately affecting Pakistan’s economy. For now, Pakistan plans to pragmatically manage its reservoirs to ensure adequate water distribution among provinces.
India’s continued diplomatic efforts to push Pakistan back onto the FATF grey list reflect its broader strategy to hold Pakistan accountable for cross-border terrorism. If successful, Pakistan’s financial stability could be significantly affected, impacting both developmental projects and social welfare schemes.
The question of whether Pakistan will return to the FATF grey list remains open, but India’s strategic push at the IMF and other multilateral forums indicates its determination to hold Pakistan accountable. As the situation unfolds, the international community will closely watch how multilateral agencies balance financial aid with concerns over terror financing.
