Rising India-Pakistan Tensions Spotlight IMF And World Bank Aid To Pakistan’s Fragile Economy

As tensions rise between India and Pakistan, concerns grow over how multilateral agencies like the IMF and World Bank continue to support Pakistan’s fragile economy.

Despite warnings that Pakistan’s IMF loans may follow a dangerous pattern of good money chasing bad, these agencies show no signs of caution.

The World Bank has pledged $20 billion to Pakistan over 10 years, while the IMF continues its financial support.

The history of the Bretton Woods institutions, created post-Depression and WWII, remains debatable in terms of actual success.

Pakistan’s current borrowings from the IMF stand at $8.5 billion (SDR 6.3 billion), with 35% borrowed recently.

Much of the new World Bank funding could go toward repaying old loans — a cycle resembling a Ponzi scheme. These schemes appear sound in smooth times but collapse under scrutiny.

Weak Scrutiny & Poor Governance Raise Red Flags

The IMF’s Extended Fund Facility aims to help countries with balance-of-payment issues and structural reforms.

The World Bank claims to support social goals like education and health.

However, both institutions rarely verify the data provided by borrowing nations or subject them to credible third-party audits. This lack of oversight raises concerns about transparency and misused funds.

Pakistan’s Federal Consolidated Fund (FCF), governed by Articles 78 and 82 of its constitution, limits parliamentary control to discussion only, not voting.

In contrast, India requires full parliamentary approval for withdrawals from its Consolidated Fund, ensuring accountability and CAG audits.

Pakistan’s weak scrutiny allows funds to be rerouted without oversight, possibly towards defence and other opaque expenditures.

Defence Over Development Amid Deep Economic Distress

In FY 2024–25, Pakistan allocated nearly $10 billion to defence, up 18% from the previous year.

The nation remains one of the top arms importers despite an economic crisis.

While Pakistan’s per capita income has dropped to $1,459 (from $1,653 in 2018), its per capita defence spend is $41. India, in contrast, spends $60 per capita, but with a much stronger economic base.

This raises a vital question — are Pakistan’s IMF loans helping the country fund its defence machinery and military regime instead of real development?

The possibility of masking defence funds under social spending remains high, given the lack of legislative oversight.

World Bank data claiming defence is only 3.5% of Pakistan’s GDP looks misleading.

India has expressed concern over the end use of such aid, especially as Pakistan’s debt funds could be diverted to support cross-border terrorism.

The FATF took Pakistan off the grey list in 2022, based on promises of reform, but India insists on ‘credible, verifiable, and irreversible’ action against terrorism.

The FATF, along with the Asia Pacific Group on Money Laundering, must take India’s warnings seriously.

Two urgent issues stand out:

• First, democratic countries must end their moral hesitation in acting against a nation that chose hunger to build nuclear arms while running a proxy war, and
• Second, the global threat of economic terrorism looms large

Pakistan could be funnelling aid to fuel clandestine nuclear markets, risking world peace. With Asim Munir’s rise to Field Marshal, fears of a return to military dictatorship grow.

India’s new normal makes one thing clear — national honour will not be compromised by economic pressure or flawed diplomacy.

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