Pahalgam Terrorist Attack: India Cuts Water, Airspace, and Social Media Access – Calls for IMF Loan Review for Pakistan

In response to the terrorist attack in Pahalgam, Jammu & Kashmir, India has taken strong retaliatory measures against Pakistan, which it accuses of harboring terrorists. India has cut off the flow of Indus river water, closed its airspace, and banned Pakistani social media platforms within the country. Furthermore, India has urged the International Monetary Fund (IMF) to review and possibly halt a $7 billion loan package for Pakistan. There is also a push to bring Pakistan back onto the FATF Grey List, which could seriously impact its already fragile economy.

India’s Firm Stand: Two Major Actions

According to media reports, India is preparing to take two significant diplomatic and economic steps:

Push for Pakistan to be added back to the Financial Action Task Force (FATF) Grey List, which monitors countries that fail to effectively combat terrorism financing and money laundering.

Request a review of the $7 billion financial aid package Pakistan is scheduled to receive from the IMF.

Both actions aim to intensify pressure on Pakistan to stop providing shelter to terrorist groups.

What Happens if Pakistan Re-Enters the FATF Grey List?

Being placed on the FATF Grey List would deal a major blow to Pakistan’s economy. It would become much harder for the country to access funds from international financial institutions like the IMF, World Bank, and European Union. Foreign investors and financial institutions typically avoid countries on the list due to increased financial risk. The cost of transactions will rise, the Pakistani currency could weaken further, and pressure would mount on Pakistan to take concrete actions against terror financing, or risk being blacklisted.

Impact of IMF Loan Review

If the IMF reviews or halts the $7 billion loan, Pakistan’s external debt repayments and economic stability would be seriously threatened. With current foreign reserves around $9.5 billion, any disruption in international aid could hamper imports, increase pressure on the Pakistani rupee, and further raise inflation and interest rates. Pakistan’s growth, which was already down to 2% in 2024, could shrink further. Investment would also dry up, worsening the economic crisis.

How Can Pakistan Be Added Back to the FATF Grey List?

India would need support from other FATF member countries to get Pakistan re-listed. Decisions are made during FATF plenary meetings, held three times a year—in February, June, and October. Once added to the Grey List, Pakistan could face a sharp decline in foreign investment and capital inflows, worsening its economic situation.

Pakistan Was Removed from the Grey List in October 2022

This wouldn’t be Pakistan’s first time on the list. It was previously listed until October 2022, after being monitored for terror financing and money laundering since 2018. Indian officials believe that re-listing Pakistan would help cut illegal financial flows used to fund terrorism in India.