India Mulls FATF and IMF Measures to Counter Pakistan After Pahalgam Terror Attack
In the aftermath of the recent terror attack in Pahalgam on April 22, which claimed 26 lives, India is actively exploring financial and diplomatic options to hold Pakistan accountable for its continued support of terrorism.
Two key steps under consideration include pressuring the Financial Action Task Force (FATF) to re-list Pakistan on its ‘grey list’, and objecting to the International Monetary Fund’s (IMF) ongoing financial assistance to the country.
Push for FATF Grey Listing
Officials familiar with the matter revealed that India is contemplating a formal proposal to the FATF to reinstate Pakistan on its grey list, citing renewed threats of terror financing.
Pakistan had previously remained on the FATF’s grey list from June 2018 to October 2022, which subjected it to increased monitoring and impacted foreign investment and financial inflows.
During that period, India noted a significant reduction in illicit financial transfers into sensitive regions like Jammu and Kashmir.
To initiate such a process, India must secure backing from several FATF member countries.
The FATF, an international watchdog for money laundering and terror financing, comprises 40 members and over 200 cooperating jurisdictions.
Proposals to list or grey-list a country must go through a nomination process and be approved by the FATF’s Plenary, its top decision-making body that meets thrice annually—in February, June, and October.
India sees potential momentum for its effort, having received condolence messages from at least 23 FATF member states following the Pahalgam attack.
These include key global powers such as the United States, the United Kingdom, France, Germany, Australia, as well as influential entities like the European Commission, Saudi Arabia, and the United Arab Emirates.
Targeting IMF Aid to Pakistan
In parallel, New Delhi is also planning to raise concerns over the IMF’s ongoing financial support to Pakistan. The IMF had approved a $7 billion bailout package for Pakistan in July 2024 under a 37-month Extended Fund Facility (EFF) programme.
With periodic reviews scheduled to determine the release of individual tranches, such as the upcoming $1 billion installment, India may object at the IMF board meeting in May, accusing Islamabad of misusing international aid to fund terrorism.
Sources said India is preparing to argue that the diversion of funds by Pakistan toward terrorist activities undermines the credibility and intended purpose of the IMF programme.
Such objections, even if symbolic, could build pressure on international financial institutions to reassess their engagements with Pakistan.
Historical Context and FATF Mechanism
When Pakistan was removed from the grey list in 2022, India had pointed out that the move had only come after Islamabad took limited action against high-profile terrorists, including those responsible for the 2008 Mumbai attacks.
New Delhi had stressed that the global community must ensure Pakistan maintains “credible, verifiable, irreversible, and sustained” efforts to dismantle terror infrastructure on its soil.
India itself underwent a mutual evaluation by FATF in September 2024, during which the watchdog noted the persistent threat of terrorism, particularly from groups linked to ISIS and al-Qaeda operating in and around Jammu and Kashmir.
The FATF’s framework includes 40 globally accepted recommendations across seven thematic areas, ranging from anti-money laundering (AML) policies to international cooperation.
Countries are periodically reviewed through mutual evaluations, where peer reviewers assess compliance and suggest enhancements to national financial crime prevention systems.
Strategic Implications
India’s proposed actions represent a focused strategy aimed at cutting off the financial lifelines that fuel cross-border terrorism.
With diplomatic groundwork already underway and international sympathy following the Pahalgam attack, Indian officials hope to gather enough support to push these initiatives forward.
If successful, the renewed grey listing of Pakistan could significantly hinder its economic prospects by deterring foreign investment and increasing its cost of international borrowing, g—pressures that New Delhi believes could force more concrete action against terror networks.
