New Delhi: In the wake of a deadly terror attack in Jammu and Kashmir’s Pahalgam last month, India has launched a renewed diplomatic campaign to pressure the Financial Action Task Force (FATF) into placing Pakistan back on its “grey list” and also, cancellation of the IMF loan to Islamabad. If it happens, the designation can damage Islamabad’s already fragile economy and limit its access to international financial aid.
The move comes after the Pahalgam terror attack, carried out by the Resistance Front (TRF), a terror group long identified as a proxy for the Pakistan-based Lashkar-e-Toiba. Twenty-six people, mostly tourists, were gunned down in Baisaran meadow in the assault. While Pakistan has denied any involvement, Indian officials point to a pattern of support for terrorist groups operating across the border. They argue that the TRF is merely a rebranded offshoot of Islamabad-backed banned outfits such as the LeT and the Hizbul Mujahideen.
The assault has resulted in a coordinated response from New Delhi, with security and intelligence agencies preparing a detailed dossier of what they call “actionable evidence” to submit to the FATF – which is the global watchdog that monitors money laundering and terrorism financing. India has added further evidence against Pakistan after it launched ‘Operation Sindoor’ a terrorists’ infrastructure across the border following the Pahalgam attack.
Showing the image of Hafiz Abdul Rauf, one of the LeT commanders, leading funeral prayer of those who were killed in India’s assault on May 7. “If only civilians were killed (as claimed by Pakistan), what does this picture signify?” asked Foreign Secretary Vikram Misri. Also pointing to presence of the personnel from the Pakistan Army in their uniforms, he said it is only the latest in a series of faux pas that have exposed the deep links between terror outfits and the Pakistani establishment.
Opposition members too, during an all-party meeting in Delhi soon after the Pahalgam attack, had asked the government to ask the United States to designate the TRF as a Foreign Terrorist Organisation (FTO) and push to bring Pakistan back on the FATF grey-list for allowing declared terrorists to operate freely in the country even after sanctions against them.
According to government sources, this evidence is intended to prove that Pakistan has not only failed to sustain reforms mandated by the FATF in the past, but is once again allowing financial networks to support terrorism, especially groups that target India.
The Ministry of External Affairs, the National Security Council Secretariat and the Enforcement Directorate have all been involved in the campaign. A senior official familiar with the effort said India is lobbying key FATF member nations to back the case for Pakistan’s re-listing, citing the country’s alleged backsliding since it was removed from the grey list in October 2022.
India is set to raise concerns over Pakistan’s repeated misuse of International Monetary Fund (IMF) bailout packages during a crucial board meeting of the global financial institution in Washington on Friday. The country’s position will be formally articulated by its representative at the IMF, Misri confirmed during a press briefing on Thursday.
“I am sure that our executive director will put forward India’s position,” he told the media. Stopping short of predicting the outcome of the meeting, he further added, “The decisions of the board are a different matter… But I think the case with regard to Pakistan should be self-evident to those people who generously open their pockets to bail out this country.”
“Pakistan’s reputation as the epicentre of global terrorism is rooted in a number of instances… I do not need to remind where Osama bin Laden was found and who called him a martyr,” Misri said, referring to Pakistan’s harbouring of the al-Qaeda leader and the country’s glorification of his legacy in certain quarters.
He further highlighted the ongoing presence of numerous UN-sanctioned terrorists operating openly within Pakistan’s borders and casted doubted the country’s sincerity in curbing terrorism and fulfilling its international obligations.
India, in recent months, has grown increasingly vocal about Pakistan’s financial practices, particularly after the IMF approved a $7 billion loan package in September 2024, of which $1 billion has already been disbursed. The financial package is spread out over several years and is designed to support macroeconomic reforms and stability in the crisis-hit nation.
Compounding India’s concern is the approval of a $1.3 billion climate-related loan by the IMF in March 2025, which India fears may also be susceptible to misuse. Misri said the core issue is not simply about IMF funding, but Pakistan’s track record with such aid. “Many of the 24 bailout packages sanctioned by the IMF for Pakistan had not reached a successful conclusion,” he pointed out and emphasised the chronic nature of Pakistan’s financial mismanagement.
Interestingly, the responsibility to represent India at the IMF currently rests with World Bank Executive Director Parameswaran Iyer after removal of K.V. Subramanian from the role. With mounting evidence of Pakistan’s financial misdirection and in light of its repeated bailouts, India wants international financial community to reevaluate support to Pakistan and ensure accountability, especially when that support risks fuelling global terrorism.
Paris-based FATF reviews countries’ compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) standards. It maintains two public lists – a blacklist for high-risk countries with severe deficiencies and a grey list for jurisdictions under increased monitoring. Grey-listed nations are expected to work with the FATF to resolve strategic shortcomings within agreed timeframes.
Pakistan was previously grey-listed after a FATF review found its national risk assessment severely deficient. The country was asked to implement a 34-point action plan to improve oversight, tighten laws and crack down on terror financing. While Pakistan did eventually pass significant legislation and allow the FATF to conduct an on-site visit, leading to its removal from the list in 2022, India remained sceptical of the country’s intentions.
“Pakistan was forced to take some action against well-known terrorists, including those involved in the 26/11 Mumbai attacks, as a result of the FATF scrutiny. However, it is in the global interest that Pakistan takes credible, irreversible and sustained action against terrorism,” the MEA had said following Pakistan’s delisting in 2022.
The stakes are high for Islamabad. Returning to the grey list could restrict access to financial markets and foreign investment. It may also jeopardise a $7 billion loan package from the IMF set to be reviewed at an upcoming board meeting. India has raised concerns that IMF funds may be misused to bankroll terror-related activities. Pakistan denies the charge but one that has found traction in international circles in the past.
To underscore its position, India has already enacted a series of retaliatory measures against Pakistan, including suspending the Indus Waters Treaty, closing the Attari-Wagah border, halting visa services and banning several Pakistani digital platforms and social media accounts. Pakistan, in turn, has responded with diplomatic countermeasures, including suspending trade ties and putting the Simla Agreement in abeyance.
The geopolitical tension between the two nuclear-armed neighbours adds urgency to the upcoming FATF deliberations. While the organization insists on neutrality and technical assessments, its decisions are heavily influenced by global political dynamics, particularly the positions of major powers such as the United States, the United Kingdom and the European Union.