As tensions between India and Pakistan escalated, attention moved to the ways in which multilateral agencies (such as the IMF) wanted to be economic saviours for a near rogue nation — this, despite warnings that good money might actually be chasing bad money in a vicious loop. With the World Bank reiterating that it will provide $20 billion over the next 10 years to Pakistan, followed by the IMF’s largesse to Islamabad, these multilateral agencies need to introspect about the need and justification for such aid.
In fact, the track record of these Bretton Woods twins, which came into being after the Great Depression of the 1930s and World War II, in truly helping countries weather economic storms and meet developmental goals remains somewhat questionable.
Our neighbour’s current borrowings from the IMF stand at close to $8.5 billion (Special Drawing Rights of $6.3 billion) — around 35 per cent of this has been in recent years. There is now a real risk of the fresh borrowings from the World Bank (or at least a part of it) being used to repay the existing debt — this is similar to many Ponzi schemes. The beauty of a Ponzi scheme lies in its being too good to be true when the going is smooth.
In principle, the IMF’s Extended Fund Facility (EFF) provides financial assistance to countries facing serious medium-term balance of payments problems — it helps them address and implement structural reforms. The World Bank’s lending targets seemingly philanthropic causes — from education and child nutrition to climate resilience. Inter alia, the surveillance and monitoring mechanism devised by the benevolent lenders, who need to account for and explain the spending of each dollar to wider stakeholders globally, needs to be in lockstep. However, the data supplied by the countries receiving such assistance rarely undergoes rigorous scrutiny — either at these hallowed agencies or through credible third parties. This undermines transparency.
Pakistan’s FCF (Federal Consolidated Fund) maintained with the country’s State Bank, is, at face value, akin to any such fund held by federal governments in most parts of the world. Established under Article 78(1) of Pakistan’s constitution, the fund is defined by its preamble as all revenues received by the federal government, all loans raised by that government, and all money received by it for the repayment of any loan. However, under Article 82 of Pakistan’s constitution, the lower house of the country’s parliament can only discuss the FCF — it has no voting rights. In contrast, India mandates that withdrawals from the Consolidated Fund of India should have parliamentary approval — this ensures transparency and accountability, apart from due diligence through an independent CAG audit. The lack of transparency in Pakistan raises larger questions on the end usage of the funds and the IMF/WB’s willingness to walk the extra mile as prudent lenders.
The issue, however, moves beyond transparency and accountability when seen from a governance perspective. In FY 2024-25, Pakistan allocated nearly $10 billion for defence spending, marking an 18 per cent jump over the previous year. Despite a weak economy, the country features regularly among the top arms-importing countries year after year. Ironically, while its per capita income has fallen ($1,459 in 2023 from $1,653 in 2018, according to the IMF), Pakistan’s per capita defence spending stands at a whopping $41 in 2024. (In case of India, it is $60 while its defence budget was more than $86 billion in 2024 as per SIPRI data).
To cut a long story short, the question is whether the loans (or grants) provided by these agencies are helping Pakistan, explicitly or implicitly, in spending disproportionately large amounts on defence procurements that ensure the nourishment of an overarching military regime, and strengthen its nefarious connection with corruption — the average citizen is a sufferer. The withdrawal of excess funds for defence could be camouflaged from the Consolidated Fund in the guise of ticking the box of some worthy cause (because the fund has little oversight from democratic mechanisms). Given the state of Pakistan’s economy, World Bank data showing that defence spending is 3.5 per cent of the country’s GDP look like fudging of the balance sheet.
Even as India lodges strong protests over the end use of such aid, with the very real possibility of the misuse of debt financing as funds for cross-border terrorism, one is reminded of Pakistan being given a clean chit by the FATF in 2022 — this facilitated its transition out of the “grey list”. Oddly enough, the FATF had then emphasised that Pakistan was taken off the list in the wake of Islamabad’s “high-level political commitment” to reform its existing monitoring mechanism. The FATF needs to heed India’s warnings — cautioning the world to ensure that Pakistan must continue to take “credible, verifiable and irreversible” action against terrorism. It could use this warning as a roadmap in alignment with the protocols of the Asia Pacific Group on Money Laundering, of which Pakistan is a member.
Two issues need specific attention. First, democratic nations need to shed the moral dilemma they have in removing restraints against a nation that pledged to eat bread made of grass in order to become a full nuclear state, while also diverting funds to run a deep state-sponsored proxy war.
Second, the proliferation of unrestricted economic terrorism is a matter of grave concern. Pakistan could be using the assistance provided by these agencies to create an Iraq-like situation. In other words, there is an urgent need for strict collaborative international supervision of its stockpiles as clandestine nuclear black markets thrive globally, posing a risk to world peace and security. The threats have multiplied with the elevation of Asim Munir as Field Marshal — signalling the increased probability of the beleaguered nation going back to military dictatorship.
A word of caution for those who grossly fail to read between the lines dictating India’s new normal: The honour of the country is no longer subjugated by the terms of trade.
The writer is member, 16th Finance Commission and group chief economic advisor, State Bank of India. Views are personal
The question is whether the loans (or grants) provided by these agencies are helping Pakistan, explicitly or implicitly, in spending disproportionately large amounts on defence procurements that ensure the nourishment of an overarching military regime, and strengthen its nefarious connection with corruption — the average citizen is a sufferer. 
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