By N. C. Bipindra

For decades, Pakistan has been a prominent beneficiary of international financial aid. From the International Monetary Fund (IMF) to the World Bank, the Asian Development Bank (ADB), bilateral donors such as Japan, and trade concessions under the European Union’s GSP+, the nation has depended on external lifelines to sustain its economy.

Nevertheless, controversy persists regarding the utilisation of these funds. Contrary to official claims, the evidence demonstrates that these funds are routinely diverted from their stated purpose. As a result, instead of being directed towards pressing social welfare and developmental requirements, international financial assistance inadvertently enables Islamabad to sustain elevated levels of defence expenditure, heightening concerns that, by extension, the cycle contributes to instability and terror financing.

Pakistan has been a considerable recipient of US defence assistance, with billions allocated annually under the pretext of fortifying security and combating terrorism. Officially, these funds are purposed to modernise the military, augment counterterrorism capabilities, and stabilise the region.

However, a meticulous examination uncovers a disconcerting pattern: a significant portion of this aid has been diverted or misappropriated, indirectly bolstering militant factions and exacerbating the very instability it seeks to alleviate. These concerns have been echoed by the Financial Action Task Force (FATF), which placed Pakistan under enhanced monitoring (grey list) from 2018 until October 2022 for systemic failures to curb money laundering and terror financing.

Even after its removal, the June 2025 FATF report flagged ongoing proliferation financing risks, citing a 2020 case where missile-related equipment was falsely declared in shipping documents and traced to Pakistan’s National Development Complex, underscoring persistent opacity in the use of aid and trade earnings.

Multilateral Bailouts: IMF, World Bank, and ADB

No institution has shaped Pakistan’s economic trajectory more than the International Monetary Fund. Since 1958, Pakistan has entered into 26 IMF arrangements, more than almost any other country. Collectively worth over $34 billion, these programmes range from small standby arrangements to massive bailouts such as the $7.2 billion package in 2008 and the $5.3 billion Extended Fund Facility approved in 2024. In May 2025, the IMF further committed $1.4 billion under its Resilience and Sustainability Facility, reinforcing Pakistan’s reliance on external rescue.

The World Bank has been an equally consistent partner. Since beginning operations in Pakistan in 1950, it has provided over $48 billion in assistance, with a new $40 billion framework launched in 2025 combining International Development Association (IDA), International Bank for Reconstruction and Development (IBRD), and International Finance Corporation (IFC) support. The Asian Development Bank (ADB), meanwhile, has committed more than $52 billion since 1966, most recently approving an $800 million package in June 2025 to strengthen fiscal sustainability and mobilise private finance.

While these programmes have provided temporary stability, their developmental impact has been limited. Observers argue that governance failures, fiscal indiscipline, and diversion of resources toward defence priorities have consistently undermined reform, leaving Pakistan trapped in cycles of bailout and dependency.

Beyond multilateral lenders, bilateral partners have played a critical role in sustaining Pakistan. The United States has provided billions of dollars in military assistance, particularly during the “War on Terror,” supplying F-16 fighter jets, attack helicopters, and surveillance systems. Though officially justified as counterterrorism aid, many of these assets have been redeployed for conventional military posturing and power projection, raising serious questions about misuse and the true intent behind such assistance.

Japan, in contrast, has been one of Pakistan’s most reliable development partners. Since the 1960s, it has extended more than $15 billion in official development assistance, targeting energy, infrastructure, education, and disaster resilience. In April 2025 alone, Tokyo pledged an additional $300 million package, including concessional loans for renewable energy and vocational training. Yet critics argue that the developmental impact of Japanese aid, like multilateral support, has been blunted by Pakistan’s weak governance and the persistent diversion of state resources into defence.

In addition to loans and aid, Pakistan has enjoyed significant trade advantages under the European Union’s Generalised Scheme of Preferences Plus (GSP+), granted in 2014. The programme allows duty-free or reduced tariffs on two-thirds of EU tariff lines, boosting Pakistan’s exports to Europe from €3.8 billion in 2013 to more than €8 billion in 2025. Textiles and apparel have been the main beneficiaries, generating millions of jobs and making the EU Pakistan’s single largest export destination.

However, the benefits of GSP+ come with obligations on human rights, labour protections, and governance. EU monitors have repeatedly flagged compliance gaps, warning that trade earnings may be sustaining fiscal imbalances rather than supporting welfare. Critics contend that much of the foreign exchange generated by GSP+ has been absorbed into defence spending, rather than invested in education, healthcare, or social reform.

The Defence Drain: Secrecy and Procurement

The absence of mandated transparency in Pakistan’s defence budget means that only a single aggregate figure is published, with no details on procurement, pensions, nuclear costs, or paramilitary expenditures. No information is provided on procurement, pensions, nuclear financing, or paramilitary expenditures. External military assistance, whether from the United States, China, or other partners, is similarly excluded from official accounts, leaving the true scale of defence finance deliberately concealed.

Procurement is especially opaque. Expensive acquisitions such as fighter jets, missile systems, submarines, and surveillance platforms are hidden under broad categories like “development expenditure” or disguised as “civilian imports” in trade data. Analysts note that foreign loans and grants often indirectly subsidize these purchases. The US funded the F-16 jets under counterterrorism justifications, while Chinese exports of JF-17 aircraft and naval frigates have been financed through undisclosed bilateral arrangements. Even debt servicing for these procurements is often buried in unrelated budget lines, further concealing costs.

This secrecy insulates the military from both parliamentary oversight and civil society scrutiny, reinforcing a fiscal model where “defence first” dictates national priorities. Consequently, welfare and development remain chronically underfunded, while foreign aid, intended for reform and growth, ultimately fuels strategic militarization. A significant portion of arms acquisitions is financed through foreign loans, yet neither the scale of borrowing nor the interest obligations incurred is transparently disclosed, leaving the true cost of militarisation hidden from public view.

Dependency Without Reform

The case of Pakistan is not a paradox but a deep hypocrisy. While its leaders and generals appeal to the world for bailouts and grants in the name of economic survival, they simultaneously sustain one of the world’s most militarised states. Instead of serving the people, the ruling elite, both military and political, devour the nation from within, like termites eating away at the foundations of the state. International aid and trade concessions, meant to build schools, hospitals, and social safety nets, are instead redirected to fuel defence procurement, elite privileges, and covert networks.

This diversion is not limited to militarisation. Aid money and trade windfalls routinely finance the debauchery of Pakistan’s elites, funding luxury imports, foreign properties, and extravagant lifestyles, while the population remains trapped in poverty. Watchdogs have documented billions siphoned abroad through illicit channels, reinforcing the pattern of elite capture. The betrayal of purpose here is stark: resources meant for public welfare are consumed in warfare and wasted on indulgence.

The result is a system where aid perpetuates dependency, corruption, and militarisation rather than reform and development. For donors, the lesson is clear: without transparency, accountability, and strict safeguards, every dollar of assistance risks becoming complicit in Pakistan’s cycle of exploitation, hypocrisy, and decay.

(The writer is the Chairman of Delhi-based think tank Law and Society Alliance. The article’s first version was printed in The Pioneer’s Delhi edition on September 26, 2025, on Page 9.)