Secret Pakistani arms sales to the U.S. helped to facilitate a controversial bailout from the International Monetary Fund earlier this year, according to two sources with knowledge of the arrangement, with confirmation from internal Pakistani and American government documents. The arms sales were made for the purpose of supplying the Ukrainian military — marking Pakistani involvement in a conflict it had faced U.S. pressure to take sides on.
The revelation is a window into the kind of behind-the-scenes maneuvering between financial and political authorities that rarely is exposed to the public, even as the public pays the price. Harsh structural policy reforms demanded by the IMF as terms for its recent bailout kicked off an ongoing round of protests in the country. Major strikes have taken place throughout Pakistan in recent weeks in response to the measures.
The protests are the latest chapter in a year-and-a-half-long political crisis roiling the country. In April 2022, the Pakistani military, with the encouragement of the U.S., helped organize the removal of Prime Minister Imran Khan. Ahead of the ouster, State Department diplomats privately expressed anger to their Pakistani counterparts over what they called Pakistan’s “aggressively neutral” stance on the Ukraine war under Khan. They warned of dire consequences if Khan remained in power and promised “all would be forgiven” if he were removed.
Since Khan’s ouster, Pakistan has emerged as a useful supporter of the U.S. and its allies in the war, assistance that has now been repaid with an IMF loan. The emergency loan allowed the new Pakistani government to put off a looming economic catastrophe and indefinitely postpone elections — time it used to launch a nationwide crackdown on civil society and jail Khan.
Pakistan is known as a production hub for the types of basic munitions needed for grinding warfare. As Ukraine grappled with chronic shortages of munitions and hardware, the presence of Pakistani-produced shells and other ordinances by the Ukrainian military has surfaced in open-source news reports about the conflict, though neither the U.S. nor Pakistan has acknowledged the arrangement.
Records detailing the arms transactions were leaked to The Intercept earlier this year by a source within the Pakistani military. The documents describe munitions sales agreed to between the U.S. and Pakistan from the summer of 2022 to the spring of 2023. Some of the documents were authenticated by matching the signature of an American brigadier general with his signature on publicly available mortgage records in the United States; by matching the Pakistani documents with corresponding American documents; and by reviewing publicly available but previously unreported Pakistani disclosures of arms sales to the U.S. posted by the State Bank of Pakistan.
The weapons deals were brokered, according to the documents, by Global Military Products, a subsidiary of Global Ordnance, a controversial arms dealer whose entanglements with less-than-reputable figures in Ukraine were the subject of a recent New York Times article.
Documents outlining the money trail and talks with U.S. officials include American and Pakistani contracts, licensing, and requisition documents related to U.S.-brokered deals to buy Pakistani military weapons for Ukraine.
The economic capital and political goodwill from the arms sales played a key role in helping secure the bailout from the IMF, with the State Department agreeing to take the IMF into confidence regarding the undisclosed weapons deal, according to sources with knowledge of the arrangement, and confirmed by a related document.
To win the loan, Pakistan had been told by the IMF it had to meet certain financing and refinancing targets related to its debt and foreign investment — targets that the country was struggling to meet. The weapons sales came to the rescue, with the funds garnered from the sale of munitions for Ukraine going a long way to cover the gap.
Securing the loan eased economic pressure, enabling the military government to delay elections — a potential reckoning in the long aftermath of Khan’s removal — and deepen the crackdown against Khan’s supporters and other dissenters. The U.S. remained largely silent about the extraordinary scale of the state violence inflicted on the Pakistani population, as elections have been indefinitely postponed, similarly to Ukraine.
Bombs for Bailouts
On May 23, 2023, according to The Intercept’s investigation, Pakistani Ambassador to the U.S. Masood Khan sat down with Assistant Secretary of State Donald Lu at the State Department in Washington, D.C., for a meeting about how Pakistani arms sales to Ukraine could shore up its financial position in the eyes of the IMF. The goal of the sit-down, held on a Tuesday, was to hash out details of the arrangement ahead of an upcoming meeting in Islamabad the following Friday between U.S. Ambassador to Pakistan Donald Blome and then-Finance Minister Ishaq Dar.
Lu told Khan at the May 23 meeting that the U.S. had cleared payment for the Pakistani munitions production and would tell the IMF confidentially about the program. Lu acknowledged the Pakistanis believed the arms contributions to be worth $900 million, which would help to cover a remaining gap in the financing required by the IMF, pegged at roughly $2 billion. What precise figure the U.S. would relay to the IMF remained to be negotiated, he told Khan.
Eleventh-Hour IMF Deal
The diplomatic discussion about the loan came a month before a June 30 deadline for the IMF’s review of a planned billion-dollar payment, part of a $6 billion agreement made in 2019. A failed review would mean no cash infusion, but, in the months and weeks ahead of the deadline, Pakistani officials publicly denied that they faced serious challenges in financing the new loan.
In early 2023, Dar, the finance minister, said that external financing assurance — in other words, financial commitments from places like China, the Gulf states, or the U.S. — were not a condition the IMF was insisting Pakistan meet. In March 2023, however, the IMF representative in charge of dealing with Pakistan publicly contradicted Dar’s rosy assessment. IMF’s Esther Perez Ruiz said in an email to Reuters that all borrowers need to be able to demonstrate that they can finance repayments. “Pakistan is no exception,” Perez said.
The IMF statement sent Pakistani officials scrambling for a solution. The required financing, according to public reporting and confirmed by sources with knowledge of the arrangement, was set at $6 billion. To reach that goal, the Pakistani government claimed it had secured roughly $4 billion in commitments from Gulf countries. The secret arms deal for Ukraine would allow Pakistan to add nearly another billion dollars to its balance sheet — if the U.S. would let the IMF in on the secret.
“It was at an impasse because of the remaining $2 billion,” said Rafiq, the Middle East Institute scholar. “So if that figure is accurate, the $900 million, that’s almost half of that. That’s pretty substantial in terms of that gap that had to be bridged.”
On June 29, a day before the original program was set to expire, the IMF made a surprise announcement that instead of extending the previous series of loans and releasing the next $1.1 billion installment, the bank would instead be entering an agreement — “called a Stand-By Arrangement” — with fewer strings attached, more favorable terms, and valued at $3 billion.
The agreement included the conditions that the currency would be allowed to float freely and energy subsidies would be withdrawn. The deal was finalized in July after Parliament approved the conditions, including a nearly 50 percent increase in the cost of energy.
Uzair Younus, director of the Pakistan Initiative at the Atlantic Council’s South Asia Center, said that the IMF deal was critical to Pakistan’s short-term economic survival. “Had that not happened, there would have been a full-blown economic meltdown in the country,” Younus said. “So it was a make-or-break moment.”
The question of how Pakistan overcame its financing obstacles, has remained a mystery even to those following the situation professionally. The IMF issues public accounting of its reviews, Rafiq noted, but doing so if the financing relates to secret military projects presents an unusual challenge.
Imran Khan, Ukraine, and Pakistan’s Future
At the start of the Ukraine war, Pakistan was in a markedly different geopolitical and economic position. When the conflict began, Khan, at the time the prime minister, was in the air on the way to Moscow for a long-planned bilateral meeting with Russian President Vladimir Putin. The visit outraged American officials.
Lu, the senior State Department official, said in a meeting with then-Pakistani Ambassador Asad Majeed Khan two weeks after the invasion that it was the belief of the U.S. that Pakistan had taken a neutral position solely at Khan’s direction, adding that “all would be forgiven” if Khan was removed in the no-confidence vote. Since his ouster, Pakistan has firmly taken the side of the U.S. and Ukraine in the war.
After orchestrating Khan’s removal, the military embarked on a campaign to eradicate his political party through a wave of killings and mass detentions. Khan himself is currently imprisoned on charges of mishandling a classified document and facing some 150 additional charges — allegations widely viewed as a pretext to stop him from contesting future elections.
While Pakistan reels from the impact of IMF-directed austerity policies and the political dysfunction that followed Khan’s removal, its new military leaders have made lofty promises that foreign economic support will rescue the country. According to reports in the Pakistani publication Dawn, Army Chief Gen. Asim Munir recently told a gathering of Pakistani businessmen that the country could expect as much as $100 billion in new investment from Saudi Arabia and other Gulf states, hinting that there would be no more appeals to the IMF.
The absence of other foreign support left Pakistan’s embattled military regime further dependent on the IMF, the U.S., and the production of munitions for the war in Ukraine to sustain itself through a crisis that shows no sign of resolution.
Found at The Intercept