IMF sounds alarm on Pakistan’s systemic corruption: Why bailouts continue despite growing security risks for India

People walk through a market selling Pakistan's national flags and other accessories in Karachi on August 12, 2025, ahead of the country's Independence Day celebrations. (Photo by Rizwan TABASSUM / AFP)

Pakistan has received one of its harshest assessments yet from the International Monetary Fund. In its Governance and Corruption Diagnostic Report, the IMF describes corruption as “persistent and corrosive” and says it has become embedded in the country’s political and economic system.

The report portrays a state riddled with elite capture, opaque decision-making and weak institutions that no longer serve the public interest. Instead, power and resources remain concentrated in the hands of a narrow political and military elite.

The IMF warns that corruption distorts markets, discourages investment and weakens government capacity. Pakistan’s record on controlling graft places it among the worst global performers. Between January 2023 and December 2024 alone, corruption-related recoveries stood at Rs 5.3 trillion, but the Fund stresses this is only a “narrow slice” of the real damage.

Institutions seen as compromised

The IMF is direct in its criticism of Pakistan’s judiciary and law enforcement. Courts are described as slow and vulnerable to interference, which undermines contract enforcement and property rights. Public trust is low, with a majority of citizens viewing anti-corruption agencies as tools of political victimisation.

State-owned enterprises are another major concern. These entities control assets worth nearly half of Pakistan’s GDP and are seen as hotbeds of inefficiency and patronage. Instead of supporting growth, they crowd out private enterprise and deepen fiscal stress.

Alarm over the military-backed SIFC

The report also flags the Special Investment Facilitation Council, the powerful civil-military body overseeing strategic investments. It says the SIFC “operates with untested transparency and accountability provisions,” raising fears of unchecked discretion over major economic decisions. The IMF has urged Islamabad to publish detailed annual disclosures of SIFC decisions and concessions, signalling deep unease over the military’s expanding economic role.

Terror financing and India’s concern

Beyond governance, India has repeatedly warned that IMF funds indirectly enable Pakistan’s security establishment, which continues to patronise terror groups targeting Indian territory. New Delhi has argued that while IMF loans are meant for economic stabilisation, they free up Pakistan’s domestic resources, allowing continued funding of extremist networks.

India formally expressed concern at the IMF over Pakistan’s record and highlighted the “possibility of misuse of debt financing funds for state sponsored cross border terrorism.” The IMF maintains that its funds are monitored and cannot be misused, but critics argue money is fungible and that Pakistan’s past links to militant groups make any unconditional support risky.

Pakistan’s repeated appearances on the FATF grey list for terror financing failures further strengthen fears that governance rot is not just economic but also strategic.

Why the IMF keeps lending

Despite these concerns, the IMF continues to back Pakistan largely because of geopolitical realities. Pakistan is seen as too fragile and too strategically located to be allowed to collapse. A financial meltdown in a nuclear-armed state could destabilise the entire region.

This has allowed Islamabad to survive on a cycle of promises and partial reforms, while avoiding deep structural change. Each bailout comes with conditions, yet Pakistan consistently fails to implement them fully, returning to the IMF again and again.

Reform or permanent decline

The IMF warns that only sweeping reforms can lift Pakistan out of its crisis. If governance improves and transparency is enforced, GDP growth could rise by 5 to 6.5 percent over five years. Without this, Pakistan will remain trapped in stagnation and permanent dependency on external bailouts.

For India and the wider region, the danger is clear. A corrupt, unstable Pakistan sustained by international money but unwilling to dismantle its terror ecosystem is not just an economic problem. It is a persistent security threat.