Elite capture, corruption holding back Pakistan’s economy: IMF

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Despite recent stabilization under the Extended Fund Facility (EFF), graft and institutional weakness continue to hamper the country’s economic progress, says the International Monetary Fund’s (IMF) Governance and Corruption Perceptions Assessment (GCDA) on Pakistan.

The fund has made the publication of the assessment a precondition for the IMF’s executive board to sign off on disbursements of $1.2 billion under the $7 billion program next month.

The assessment exercise was requested by the government and launched in January 2025, the executive summary said.

An interdisciplinary IMF team, joined by experts from the World Bank, spent more than eight months and two field missions working with federal officials and other stakeholders to identify governance gaps, corruption risks with economic consequences, and priority reforms to improve efficiency, accountability and integrity.

Guided by the IMF’s 2018 framework for increased engagement with governance, the assessment focuses on corruption risks and governance weaknesses at the federal level in five key areas: financial administration, including public financial management, procurement, state assets and tax policy. market regulation; Financial Sector Supervision; Countering Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT); and with special emphasis on the rule of law, enforcement of contracts, protection of property rights and judicial integrity.

The assessment also examines the legal and organizational anti-corruption framework and how anti-corruption strategies are aligned with identified risks.

The IMF pointed out that, according to its framework, the exercise is limited to issues of corruption and governance at the federal level and does not address broader governance concerns within and between provinces.

This report is based on information collected before and during April 2025 and does not capture reforms introduced after that date. The publication of GCDA by the end of August 2025 is also a structural benchmark under the 37-month, approved EFF of $7 billion on September 25, 2024.

When errors persist, the economy is stable under the EFF

Policy efforts under the EFF have already made “significant progress” in stabilizing the economy and rebuilding confidence, the fund said.

It cited an underlying share of 2.0 percent of GDP in the first half of FY25, and puts Pakistan largely on track to meet the 2.1% GDP target for FY25, a historic low of 0.3 percent inflation in April, and an improvement to $10.3 billion at the end of 2024, an improvement from $9.3 billion to $9.3 billion. is up to Continue rebuilding through late June 2025 and mid-term.

At the same time, the report warns that long-standing structural challenges continue to weigh on Pakistan’s economic momentum. While past IMF-supported programs have generally been successful in stabilizing the economy, the IMF and the government have acknowledged that reforms have not been institutionalized enough to address underlying weaknesses.

Living standards have failed to keep pace with peer countries in South and Southeast Asia, the report notes, reflecting a decline in human and physical capital, economic deterioration linked to the state’s large role in the economy, structural financial weaknesses and persistent economic pressures that have increased financing needs and external risks.

Elites, complex taxes and slow courts deepen the dangers of corruption

“Corruption is a persistent challenge in Pakistan, with significant negative implications for economic development,” the report said. It says the indicators reflect weak control of corruption over time, with negative consequences for public spending, revenue collection and the effectiveness of trust in the legal system.

The IMF has noted that Pakistanis are often forced to make regular payments to officials to access basic services, while corruption-free funds could otherwise support higher productivity and growth.

While risks exist at all levels of government, the IMF finds that the most economically vulnerable appear to be among “privileged entities” that have influence over key economic sectors, including those affiliated with or linked to the state.

The report states that political and economic elites have hindered economic development by controlling policies and extracting public benefits for their own benefit.

It cites the 2019 decision under the Pakistan Tehreek-e-Insaf (PTI) government to allow sugar exports as an example of how elite interests can shape policy, and notes that the restoration of the National Accountability Bureau (NAB) from January 2023 to December 2024 accounted for only a small fraction of the economic loss due to corruption.

The assessment highlights governance weaknesses in state functions that expose Pakistan to the risk of corruption. It points to deficiencies in budgeting and reporting of financial information and in the management of public financial and non-financial resources, particularly in the monitoring of capital expenditure, public procurement and state-owned enterprises (SOEs).

The report observes that large discrepancies between budget allocations and actual expenditure raise questions about financial transparency, and districts under the influence of government and bureaucracy receive more development funds.

It described the tax system as overly complex, with weak administration and oversight contributing to corruption risks. The IMF says complications in the tax regime reflect broader state weaknesses, adding that the decline in the tax-to-GDP ratio is a sign of corruption risks and that it is important to hold tax officials accountable for their performance.

Market regulation is marked by multiple regulators issuing overlapping rules through confusing processes, high compliance costs and perceptions of regulatory capture.

Despite the existence of multiple accountability institutions, the report noted, Pakistan faced systemic challenges in holding individuals and organizations accountable for inefficiencies and errors in the application of business regulations.

In the judicial sector, the report cites organizational complexity, large case backlogs, antiquated laws and questions over the integrity and independence of judges and judicial officials as factors undermining the reliable enforcement of treaties and the protection of property rights.

It described Pakistan’s judicial sector as structurally complex and said that complexity and delays in the system affect economic activity. Reliance on courts to enforce economic rights is discouraged, he says, by delays and concerns about institutional integrity.

Fragmentation between accountability institutions and limitations in their operational independence further exacerbate corruption risks.

The IMF says that not all anti-corruption efforts have been fully effective so far, and that officials are often reluctant to make important decisions. Although recent AML/CFT reforms have enabled Pakistan to be removed from the Financial Action Task Force (FATF) greylist, the report notes that implementation of penalties under Pakistan’s FATF-related targets has been slow, with few convictions against those involved in money laundering.

IMF Press Reform Plan, Highlighting Growth Potential

The report presents a series of recommendations ranging from immediate and short-term measures to medium- and long-term structural reforms aimed at strengthening governance, reducing corruption risks and supporting sustainable, private-sector-led growth.

The IMF has called for an immediate launch of the 15-point reform agenda and said that improving governance, accountability and integrity along the lines suggested would yield significant economic benefits.

Key recommendations include ending special privileges granted to large government entities in government contracts, transitioning public procurement to an e-governance system within 12 months, and establishing strict parliamentary oversight of the government’s financial powers. The report also calls for greater transparency and accountability in policy-making and implementation, including more open access to financial information.

It calls for reforms to anti-corruption institutions and stronger, more consistent enforcement, including more effective use of AML/CFT tools against corruption-related money laundering.

These initiatives are designed to empower the private sector, address weaknesses in public sector performance and enhance accountability and the functioning of anti-corruption structures.

A “unifying theme”, the report says, is increasing transparency and accountability in policy formulation, implementation and monitoring, improving access to information and strengthening the capacity of state and non-state stakeholders to participate effectively in governance and economic decision-making.

The IMF noted that Pakistan has already demonstrated the ability to design and implement technically demanding reforms, citing increased central bank independence, early adoption and enforcement of legislation, repeal of regulations to improve the business environment and rollout of a national database and registration authority’s digital ID and biometric system.

The recommendations in the GCDA are designed to complement the government’s ongoing reform agenda and aim to strengthen its momentum and sustainability.

Based on cross-country experience in emerging markets, the IMF analysis projects that Pakistan could achieve GDP growth of 5 percent to 6.5 percent over five years by implementing a package of governance reforms outlined in the report, including improvements in governance and anti-corruption, business regulations and foreign trade regulations.