Allegations have surfaced suggesting that approximately $17 million in USAID funds were misused in Pakistan, raising serious concerns about financial oversight and accountability. In response, Trump has frozen USAID funding, halting 39 projects valued at over $845 million. These include critical initiatives in energy, economic development, education, and humanitarian aid, leaving Pakistan at risk of losing essential international support.
A key factor in this financial turmoil is the unchecked influence of international non-governmental organizations (INGOs), whose local partners were allegedly found engaged in opaque financial practices. Rather than effectively channeling aid toward development, some of these entities allegedly diverted funds into unauthorized activities, inadvertently fueling illicit trade. The Campaign for Tobacco-Free Kids (CTFK) and Vital Strategies, funded by Bloomberg Philanthropies, are under scrutiny in Pakistan for operating without proper registration or financial oversight. Investigations revealed that the local associates, operating under these INGOs, were appointed without proper oversight and misused funds instead of allocating them to their intended causes.
The Interior Ministry ordered the State Bank to freeze their accounts, as neither organization was registered with the required authorities. Accused of illegally funding local groups, influencing policy-making, and sponsoring officials’ international tours, the local counterparts of these INGOs face a complete cessation of activities. Pakistan has long been wary of such organizations— in 2015, Save the Children was expelled over allegations of involvement in foreign intelligence operations. The government’s intensified scrutiny of INGOs today signals a determined effort to prevent financial mismanagement and ensure that foreign funding does not inadvertently fuel illicit trade or undermine national interests.
Meanwhile, illicit trade has grown into a multi-trillion-dollar industry, ranking among the world’s top economies. It is driven by narcotics, arms smuggling, human trafficking, counterfeit goods, and tax evasion in tobacco and alcohol markets. In 2023, 90 Customs administrations worldwide reported 38,022 cases of tobacco smuggling, marking a 54% increase from the previous year. These illicit financial flows divert billions from critical infrastructure, healthcare, and social welfare, with Pakistan alone losing PKR 300 billion annually to illicit cigarettes.
Right now, Pakistan faces the same risks as Malawi’s 2013 Capital Hill Cashgate Scandal, where massive embezzlement led international donors—including the UK and Norway—to freeze $150 million in aid, crippling essential services. The IMF also withheld a $20 million loan, creating financial distress that severely impacted Malawi’s public services, including healthcare and education. If financial mismanagement persists, Pakistan could see a similar erosion of international donor confidence, jeopardizing crucial development projects.
Policy experts argue that greater financial oversight is crucial to mitigating the risks posed by unregulated INGOs. “The illicit trade economy thrives in environments where financial accountability is weak,” said Fawad Khan, spokesperson for Mustehkam Pakistan, a Pakistani policy think tank. “For Pakistan to safeguard its economy and sovereignty, INGOs must adhere to the same financial transparency standards as local entities, ensuring aid supports development rather than distorting markets.”Â
International donors have long placed their trust in Pakistan, channeling funds to support its development. However, persistent financial mismanagement has repeatedly eroded this confidence, with issues such as fund misallocation, fraud, tax evasion, and lack of transparency fueling skepticism. As Pakistan strengthens its regulatory frameworks, ensuring INGOs adhere to strict financial transparency is critical for economic stability and national security. Without decisive action, the line between aid and economic disruption will continue to blur, threatening both governance and development.