India moves to re-list Pakistan on FATF grey list and seeks IMF aid review over terror funding concerns after the Pahalgam attack.
In response to the deadly terrorist attack in Pahalgam, Jammu and Kashmir, on April 22, 2025, which claimed the lives of 26 Hindu tourists, India is considering two significant measures aimed at curbing financial support for terrorism emanating from Pakistan.
Push to Re-List Pakistan on FATF’s Grey List
India is contemplating initiating a process to have Pakistan reinstated on the Financial Action Task Force’s (FATF) “grey list,” a designation that subjects countries to increased monitoring due to deficiencies in combating money laundering and terrorist financing. Pakistan was previously placed on the grey list in June 2018 and remained there until October 2022. During this period, Pakistan was required to implement a 34-point action plan to address these deficiencies.
Re-listing Pakistan could have significant economic repercussions, including reduced foreign direct investment and increased due diligence requirements for international financial transactions. This move would also signal to the global community that Pakistan has not made sufficient progress in curbing financial support for terrorism.
Request to review IMF aid to Pakistan
Concurrently, India has requested the International Monetary Fund (IMF) to review its ongoing financial assistance to Pakistan. Pakistan is currently benefiting from a $7 billion bailout package initiated in July 2024. India’s objection centres on concerns that these funds may be diverted to support terrorist activities, particularly following the recent attack in Pahalgam.
The IMF is scheduled to conduct a performance review of Pakistan’s economic program in May 2025. India’s intervention could influence the IMF’s assessment and potentially affect the disbursement of future financial assistance to Pakistan.
Pakistan’s history with FATF
Pakistan has a history of being placed on and removed from the FATF’s grey list. Before its removal in October 2022, Pakistan had been on the list since June 2018. During this period, Pakistan was required to implement a 34-point action plan to address deficiencies in its anti-money laundering and counter-terrorist financing regimes .
The FATF’s decision to remove Pakistan from the grey list in 2022 was based on the country’s reported progress in improving its compliance with international standards. However, India has expressed concerns that Pakistan has not sustained these efforts, particularly in addressing the financial support for terrorist groups operating within its borders.
Implications for regional security
The proposed measures reflect India’s broader strategy to combat cross-border terrorism by targeting its financial underpinnings. By pressuring international financial institutions and regulatory bodies, India aims to disrupt the economic networks that support terrorist activities originating from Pakistan.
These developments come at a time of heightened tensions between India and Pakistan following the Pahalgam attack. Both countries have taken steps to suspend key bilateral agreements, including a vital river-sharing treaty and airspace access, further straining diplomatic relations.
India’s consideration to re-list Pakistan on the FATF’s grey list and its request to the IMF to review financial assistance to Pakistan underscore the country’s commitment to combating terrorism financing. These actions aim to exert international pressure on Pakistan to take more decisive and sustained actions against terrorist groups operating within its territory. The outcomes of these initiatives will be closely monitored by the global community, as they have significant implications for regional stability and international financial cooperation.
