10-05-2025
As the IMF bails out Pakistan yet again, accountability is the casualty
Written by Deepanshu Mohan
On May 9, in a tense session marked by geopolitical friction, the International Monetary Fund approved Pakistan's 24th bailout: a $1 billion disbursement under the Extended Fund Facility and $1.3 billion from the Resilience and Sustainability Facility. India abstained in protest, citing Pakistan's role and responsibility in the April 22 Pahalgam terrorist attack that killed 26 people, warning that the IMF loan might be indirectly misused for state-sponsored terror. Despite India's concerns, the Fund pushed forward with the appropriation, prioritising regional stability over New Delhi's objections. The moment marks a continuation of Pakistan's long, tangled waltz with debt and the role of international financial institutions in supporting it.
Since 1958, Pakistan has secured over $28 billion in IMF arrangements. One needs to perhaps picture the neighbouring economy — like many failed states surviving on foreign aid or development assistance — as a gambler at a table where each bailout is a borrowed chip to cover the last round of losses. Even now, the IMF hesitates to declare Pakistan's debt unsustainable, fearing that doing so will scare off other lenders. It's what former State Bank of Pakistan governor Murtaza Syed calls 'extend and pretend'. The cost of this strategy is borne not in Washington, but in Karachi, Lahore, and Quetta.
Pakistan spends around 65 per cent of its tax revenue on interest payments, which leaves little for its own people. Education receives just 1.7 per cent, and health only 0.8 per cent. The Human Development Index of Pakistan lags at around 0.540, trailing behind Bangladesh. The literacy rate is at 60 per cent, and child mortality hovers at a staggering 67 per 1,000 births. For all its loans targeting the development of schools and hospitals, World Bank audits reveal up to 40 per cent of funds are lost to delays or corruption. Where does the money go?
Craig Burnside and David Dollar, in a paper titled 'Aid, Policies and Growth', studied the relationship between aid in all its forms (the term often used for development assistance) and growth for developing nations. The impact of any development assistance, the authors find, closely depends on the state's institutions and policies. In countries where corruption and institutional failures are commonplace, most aid or development assistance is wasted. It also indicated the hegemonic influence of the US (through bilateral and multilateral assertion) in ensuring aid for strategic reasons, often in the name of providing developmental funds.
In the shadow of Pakistan's $131 billion debt mountain, a stark choice looms larger with every loan that it receives: Spend the money on guns or growth. The IMF's latest bailout is meant to provide fiscal oxygen for growth. With reserves falling below $4 billion, enough for just a few weeks of imports, the infusion offers momentary relief. But growth is conditional on the robust presence and action of 'good' institutions, which the Pakistani nation-state has lacked due to a decades-old internal conflict between the army and the elected state. This makes any transparent, objective function of the state difficult.
According to the Pakistan Economic Survey 2023–24, the defence allocation for FY2024–25 is Rs 2,122 billion, which constitutes 1.7 per cent of the country's GDP. This represents a decrease from 2020's defence spending of 2.6 per cent of GDP.
A 2024 report by the Human Rights Watch highlighted that Pakistan paid about seven times more per person to service its external public debts than it did on healthcare in 2021. Entities like the Fauji Foundation, Army Welfare Trust, and Shaheen Foundation run everything from fertiliser plants to insurance companies, often outside the purview of civilian audits. In 2023, the military formalised its economic power with the Special Investment Facilitation Council (SIFC), chaired by Army Chief General Asim Munir. Meant to attract foreign investment, the SIFC brought in just $1.9 billion in FDI in FY24, a figure dwarfed by India's $70.9 billion haul.
Critics argue that the IMF and World Bank are complicit, not through intent, but through indifference. Loan conditions typically target fuel subsidies, civil service pensions, or tax reforms that affect the public. But social sector budgets remain stagnant, and the military remains untouched. Its budget is sacrosanct, and its political power is unchallenged. The ousting of Imran Khan and the post-election manoeuvrings of 2024 have only reinforced the army's grip on civilian institutions.
India's abstention on May 9, by challenging the $1.3 billion Resilience and Sustainability Facility, voiced a growing unease over the international community's continued funding of a regime where strategic priorities overshadow systemic reform.
This is a test for the IMF and its peers, which are caught between stabilising a geopolitical linchpin and enabling a cycle of dysfunction. India's protest, sparked by the Pahalgam terror attack and subsequent developments, flagged a deeper issue: The IMF's cheques often bypass accountability. The Fund's 2024 reports hint at 'geopolitical considerations' trumping fiscal rigour, a nod to Pakistan's role as a buffer for other geopolitical interests. If austerity sparks unrest, then the world need only look at Kenya's 2024 riots, where IMF-backed reforms triggered violent protests and eroded public trust.
The Fund's credibility hangs in the balance. It is increasingly seen as a lender propping up regimes that suppress dissent rather than deliver reform. The World Bank faces similar questions, as its governance and development projects stall in countries where entrenched elites prize control over change.
For global powers, the implications are not just economic but strategic as well. India's rare protest signals a turning point: The international financial system can no longer afford to bankroll dysfunction in the name of stability. As the IMF prepares its next disbursement, the real test lies in not ignoring the cost of misgovernance.
The writer is Professor of Economics and Dean, IDEAS, Office of InterDisciplinary Studies, Director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities. Ankur Singh contributed to this article
