IMF flags deep corruption risks, urges urgent reforms to lift Pakistan’s economic growth

ISLAMABAD: The International Monetary Fund (IMF), in its long-awaited Governance and Corruption Diagnostic Assessment (GCDA), has highlighted persistent corruption challenges in Pakistan driven by systemic weaknesses across state institutions and called for urgent structural reforms, Dawn reported.

The publication of the report is a precondition for the IMF executive board’s approval of a $1.2 billion disbursement expected next month. According to Dawn, the GCDA estimates that Pakistan could raise economic growth by 5 to 6.5 per cent over five years if it begins implementing a comprehensive package of governance reforms within the next three to six months.

The report presses for an end to preferential treatment for influential public sector entities in government contracts and demands transparency in the functioning of the Special Investment Facilitation Council (SIFC).

The IMF assessment, quoted by Dawn, stresses that “a unifying theme is the emphasis on increasing transparency and accountability in policy formulation, implementation and monitoring,” adding that this includes improving access to information and strengthening the capacity of state and non-state actors to participate effectively in governance and economic decision-making.

It noted that Pakistan could generate “between a 5pc to 6.5pc increase in GDP” by pursuing the recommended governance reforms. The report states that both the IMF and the government agree that confronting and reducing corruption vulnerabilities is essential for sustainable reform, asserting that anti-corruption efforts work best when governance-strengthening measures are combined with initiatives that directly confront corruption and enhance integrity.

Indicators show weak control of corruption over time, affecting public spending effectiveness, revenue collection and trust in the legal system. Citing the GCDA findings, Dawn reported that Pakistan faces systemic governance weaknesses across several state functions.

The country remains exposed to corruption risks stemming from weaknesses in budgeting, fiscal reporting and the management of public resources, particularly in capital spending, procurement, and oversight of state-owned enterprises. The report also highlights an overly complex and opaque tax system run by authorities with insufficient capacity and oversight, further undermining performance.

The judicial sector is described as inefficient and constrained by antiquated laws, making it unable to reliably enforce contracts or protect property rights due to organisational complexity and concerns over the integrity of judicial personnel, Dawn added.

On procurement reforms, the IMF has demanded the elimination of preferences for SOEs in all public sector procurements, including the removal of provisions for direct contracting, and the mandatory adoption of e-governance procurement across all state transactions within 12 months.

It has also called for the immediate publication of the first annual SIFC report detailing all investments facilitated, concessions granted and the rationale behind them. The report, as cited by Dawn, said the SIFC must develop explicit protocols and strengthen transparency measures due to its wide-ranging functions and authority.

It also questioned the circumstances of the SIFC’s creation and noted that although it was established through an amendment to accelerate investment and privatisation efforts, the Board of Investment continued to exist alongside it. The IMF observed that corruption vulnerabilities significantly affect fiscal performance.

Pakistan’s declining tax-to-GDP ratio is attributed to the complexity of the tax system, frequent rule changes and low public trust. The report further noted that the government retains substantial discretionary power over spending, with large gaps between enacted budgets and actual expenditures, and limited parliamentary engagement or public transparency.

According to Dawn, discretionary allocations tend to favour districts represented by those in government or senior bureaucracy, reflecting the system’s vulnerability to political influence. This skewed spending pattern has contributed to low returns on public investment. (ANI)