Paper: GS – II, Subject: International Relations, Topic: India and its neighbourhood, Issue: Issues with international aid to Pakistan.
Context:
Repeated financial aid to Pakistan by multilateral agencies like the IMF and World Bank, despite poor governance and high military spending in Pakistan, creates a vicious economic-political loop.
Key Highlights of aid to Pakistan:
Issues with the aid to Pakistan:
- Debt trap: Pakistan’s current IMF borrowing stands at $8.5 billion, ~35% of its total IMF quota.A significant portion of these funds is used to repay previous debt—similar to a Ponzi scheme.
- Defence Over Development: Pakistan continues to prioritize military expenditure: FY 2024-25: Over $10 billion spent on defense, 18% more than previous year.
- Mismatched spending: Pakistan is top arms importer in South Asia. Meanwhile, public welfare and developmental needs remain underfunded.
- Lack of transparency: No mandatory parliamentary approval for foreign loans under Pakistan’s Article 82 contrast to India’s Constitution (Article 114) which requires parliamentary approval for fund withdrawals.
- Poor governance: Aid often fuels corruption and inefficiency under military-dominated regimes.
Problems with Multilateral Agencies’ Approach:
- Neglect of Governance Standards: Multilateral agencies are failing to ensure accountability. They continue to lend despite poor fiscal transparency, weak institutional capacity and high defence spending over development.
- Undermining Reforms: Continuous aid without reforms disincentivizes structural change. Agencies act as economic saviors to rogue nations, ignoring long-term consequences.
- Ignored warnings: FATF delisted Pakistan from the “grey list” in 2022 which facilitated further financial flows. FATF warned against token reforms; stressing the need for “credible, verifiable” reforms.
- India’s Concerns: India has opposed such aid and abstained from IMF voting on recent loans to Pakistan, citing concerns about misuse of aid, lack of reform and Impact on regional stability and terror financing.
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