Alarm bells are ringing in government quarters as a three-member International Monetary Fund (IMF) mission is set to visit Pakistan for a Governance and Corruption Diagnostic Assessment under the country’s 2024 Extended Fund Facility (EFF). The mission, which was announced by the finance ministry, will assess the governance and corruption vulnerabilities in Pakistan’s key state functions. This includes evaluating fiscal governance, central bank governance and operations, financial sector oversight, market regulation, the rule of law, and Anti-Money Laundering/Combating the Financing of Terrorism (AML-CFT). The IMF’s involvement is part of the ongoing $7 billion loan facility granted to Pakistan in September 2023, aimed at stabilizing the country’s ailing economy.
Despite the support from the IMF, the country remains trapped in a cycle of economic difficulties, exacerbated by high inflation, a growing fiscal deficit, and a rising external debt burden. Pakistan’s economic situation has been the subject of significant scrutiny over the years, with many experts pointing to issues of corruption, mismanagement, and embezzlement in government projects funded by international financial institutions like the IMF and World Bank. These concerns have reached a critical point with the IMF’s announcement of its visit to Pakistan to assess how well the country is managing its finances and implementing reforms.
Pakistan’s relationship with the IMF dates back to the late 1958, when the country first entered into an agreement with the international financial institution to obtain loans aimed at stabilizing its economy. Since then, Pakistan has signed 22 agreements with the IMF, each addressing specific economic challenges, but often with conditions that have sparked criticism from various sectors. The country’s external debt has continued to grow, with $ 130 billion owed to foreign creditors by 2023. This debt includes loans from the IMF, the World Bank, and other multilateral agencies, as well as bilateral loans from countries like China and Saudi Arabia. Pakistan’s external debt servicing requirements are expected to continue increasing over the next few years, with repayments standing at roughly $ 10 billion annually, making it increasingly difficult for the country to meet its fiscal obligations.
The IMF’s loan programs have traditionally focused on helping Pakistan address its fiscal deficits, structural weaknesses, and foreign exchange shortages. However, the conditions attached to these loans have often involved austerity measures, tax reforms and cuts to government subsidies—policies that have sparked protests and social unrest. These conditions are intended to bring Pakistan’s economy under control, but they also have a significant social cost, particularly for the poorer segments of the population.
Pakistan’s borrowing from the World Bank has been similarly substantial. The World Bank has provided loans for long-term development projects, especially in infrastructure, poverty alleviation, education, healthcare, and energy sectors. As of 2023, the country’s external debt to the World Bank stands at approximately $ 11 billion. The World Bank’s financing has been essential in funding key projects such as road networks, water management, and energy sector reforms. Despite this, many of the World Bank’s loans have not yielded the desired outcomes. For example, projects aimed at modernizing Pakistan’s electricity sector have faced delays, cost overruns, and inefficiencies. Pakistan’s energy sector remains chronically underfunded and plagued by high transmission losses, a lack of generation capacity, and an aging infrastructure.
Another example of mismanaged loans involves the rental Power Plants Scandal of 2010-2012. This involved the establishment of power plants under a World Bank-funded program that was meant to address Pakistan’s electricity shortages. However, the plants failed to deliver the promised amount of electricity, and the project was marred by allegations of corruption, embezzlement, and political interference. Several high-ranking officials were implicated in the scandal, with reports indicating that billions of dollars were wasted on these ineffective plants. The scandal not only led to the failure of the project but also damaged Pakistan’s credibility with international lenders, including the World Bank.
The energy sector has remained a focal point of corruption and mismanagement in Pakistan, with billions of dollars in loans intended to modernize the country’s power generation, transmission, and distribution systems being squandered due to inefficiency and corruption. One major project that faced significant issues was the Neelum-Jhelum Hydropower Project, which received substantial financing from both the IMF and the World Bank. The project was initially slated to cost $ 3 billion, but due to mismanagement, corruption, and cost overruns, its final cost ballooned to over $ 6 billion. Even after completion, the project faced technical issues, which resulted in reduced output and continued financial strain on Pakistan’s energy sector.
The Pakistan Railways sector also saw a significant misuse of funds in the 2010-2014 period when the government allocated World Bank loans to modernize the country’s railway system. However, corruption and mismanagement rendered these funds largely ineffective. Projects intended to improve rail infrastructure, replace outdated equipment, and modernize the system were either delayed or poorly executed. Even though the government received substantial funding from the World Bank, the railway system continues to operate inefficiently, contributing to the country’s overall economic challenges.
While loans from the IMF and World Bank are crucial for Pakistan’s economic survival, they come with long-term costs. These funds are often used for urgent stabilizing measures, but due to corruption and inefficiencies, the intended outcomes are rarely achieved. For instance, the loan facilities have failed to achieve the structural reforms necessary to make Pakistan’s economy self-sustaining in the long run. Many of the projects funded by these loans have been plagued by delays, cost overruns, and corruption, with funds being diverted for political purposes or embezzled by officials. These systemic issues have contributed to the country’s inability to achieve sustainable economic growth despite decades of financial support from international institutions.
Looking forward, the IMF’s visit to Pakistan will undoubtedly bring even more international scrutiny to the country’s governance structures. The focus of the visit will be on identifying vulnerabilities in the country’s governance system, which has been widely criticized for being inefficient, corrupt, and often ineffective at implementing reforms. The IMF will specifically be looking at the financial and legal frameworks in place to ensure that public funds, including foreign loans, are being used properly and effectively.
The outcome of the IMF team’s visit will likely result in more stringent conditions for Pakistan in the future, as the IMF is expected to demand improvements in transparency, governance, and accountability. If the IMF’s findings show significant issues in these areas, Pakistan may face even stricter demands for reform before any future loan disbursements can be approved. The visit could also serve as a catalyst for internal reforms, with the government under pressure to tackle corruption and mismanagement head-on. However, given Pakistan’s political climate and the entrenched nature of corruption, it is unclear whether these reforms will be implemented successfully or whether they will remain another set of broken promises.
In the meantime, opposition economic experts have voiced alarm over the country’s rising debt and the government’s inability to manage loans effectively. Former finance ministers and economists have pointed out that Pakistan’s increasing reliance on IMF loans is unsustainable and that the country needs to take immediate action to reduce corruption, improve tax collection, and address inefficiencies in public spending. Opposition leaders have also criticized the government for its failure to implement structural reforms, arguing that without these reforms, Pakistan will continue to face economic stagnation.
The IMF’s visit to Pakistan is a wake-up call for the country’s leadership and a reminder of the deep-seated issues that continue to undermine its economic development. The stakes are high, and the future of Pakistan’s economy depends on the government’s ability to address these structural weaknesses, manage its debt responsibly, and ensure that international loans are used effectively for the betterment of the country.
The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance.
