Despite the gravity of the findings in the IMF’s Governance and Corruption Diagnostic Report on Pakistan, the Pakistan government’s reaction has been notably muted, treating the IMF’s diagnosis as routine rather than as an urgent call for reform
ByM. Abbas Raza | January 2026
The IMF’s Governance and Corruption Diagnostic Report (GCD), commissioned by the Government of Pakistan and finalized in November 2025, represents the first assessment of its kind for Pakistan under the IMF’s Framework for Enhanced Fund Engagement on Governance. Its purpose is to diagnose systemic governance weaknesses and corruption vulnerabilities at the federal level, particularly those with macroeconomic relevance, and to propose a comprehensive reform agenda aimed at strengthening institutional integrity, transparency, and long-term economic stability.
The diagnostic forms an integral part of Pakistan’s reform commitments under the US$7 billion Extended Fund Facility (EFF), which emphasizes fiscal sustainability, structural reforms, and institutional modernization. The assessment encompasses five core state functions: fiscal governance, market regulation, financial sector oversight, anti-money laundering and combating the financing of terrorism (AML/CFT), and the rule of law. Additionally, it assesses the effectiveness of anti-corruption institutions and identifies broader structural weaknesses in public administration.
The GCD presents a grim and data-rich diagnosis of a governance system unable to enforce the rule of law or safeguard public resources. Its central conclusion is unequivocal: Pakistan’s governance weaknesses and corruption vulnerabilities are extensive, multi-layered, and materially harmful to growth, revenue mobilization, and public trust.
One of the report’s most consequential findings is that Pakistan’s prolonged economic crisis is driven by “state capture,” a condition in which public policy and institutions are systematically manipulated to benefit a narrow circle of political and business elites. Corruption, the IMF finds, remains deeply entrenched across many public institutions, facilitated by weak regulatory frameworks, limited transparency, overlapping mandates, and excessive discretion. The state’s dominant role in the economy, particularly through state-owned enterprises (SOEs) and heavy regulation of critical sectors, further amplifies opportunities for rent-seeking and regulatory capture by politically connected firms.
Public financial management emerges as a major vulnerability. The report documents significant variances between budget forecasts and actual expenditures, weak procurement controls, inefficient public investment management, and poor oversight of SOEs. Tax and customs systems are described as opaque and excessively complex, riddled with exemptions, discretionary reliefs, and weak internal controls within the Federal Board of Revenue (FBR). Despite wielding extensive powers, revenue authorities operate with limited oversight, resulting in a persistently low tax-to-GDP ratio and high exposure to corruption in customs administration.
The former Finance Minister, Dr. Mehboob-ul-Haq, is on record as having observed that in Pakistan every “white” rupee was backed by two “black” rupees. Economists now contend that this ratio has worsened significantly, estimating that each white rupee is backed by as many as four black rupees. This implies that Pakistan’s officially declared GDP of approximately USD 350 billion represents only about 27 percent of the real size of the economy. The remainder operates in the shadows, undocumented, untaxed, and increasingly channeled into money-laundering activities, severely distorting the country’s economic structure. The consequences are borne disproportionately by the most vulnerable segments of society living below the poverty line. Such pervasive informality also poses serious risks to Pakistan’s economic stability and strategic sovereignty.
Market regulation suffers from excessive and overlapping rules, limited independence of regulatory agencies, and frequent discretionary application of laws. These distortions disadvantage compliant businesses while rewarding those with political connections, undermining competition and investor confidence.
The diagnostic is particularly critical of Pakistan’s accountability architecture. Anti-corruption and oversight bodies, including audit institutions, enforcement agencies, and the judiciary, are found to lack sufficient independence, competence, coordination, and follow-through. Audit findings are rarely acted upon, allowing systemic failures to persist. Legal frameworks remain outdated, while courts are overburdened, slow, and vulnerable to political influence. These deficiencies weaken contract enforcement, property rights, and fair adjudication of commercial disputes.
While Pakistan has strengthened its AML/CFT framework, as evidenced by its removal from certain international watchlists, the IMF finds that enforcement remains weak, particularly in prosecuting corruption-linked money laundering, recovering assets, and ensuring effective cross-border cooperation.
A pervasive lack of transparency and restricted access to information severely limit the ability of civil society and the public to monitor government actions. This undermines accountability, degrades public-sector performance, discourages private investment, and erodes trust in state institutions. The IMF bluntly observes that corruption continues to hinder Pakistan’s macroeconomic and social development by diverting public funds, distorting markets, impeding fair competition, and constraining domestic and foreign investment. Governance indicators over the past two decades place Pakistan among the weakest global performers in controlling corruption.
IMF’s Governance and Corruption Diagnostic Report on Pakistan is a stark indictment of the country’s systemic failure
The report highlights SOEs and public procurement as leading corruption channels, marked by politicized appointments, non-transparent contracts, and weak audit trails. These patterns reflect historical structures of elite privilege that date back to Pakistan’s early industrialization, when state patronage enabled a small group of business families to dominate key sectors of the economy.
During the 1950s and 1960s, Pakistan pursued rapid industrialization through policies that strongly favoured private-sector industrialists. These policies included access to cheap credit, import licensing, foreign-exchange controls, tariff protection, and extensive state patronage. Within this framework, a small group of business families, later referred to as the “22 Families,” came to dominate a substantial share of the country’s banking, insurance, and industrial assets, entrenching a highly concentrated economic structure. The persistence of such arrangements reinforces elite capture and weakens the state’s capacity to govern effectively.
The IMF devotes particular attention to the Special Investment Facilitation Council (SIFC), established in June 2023 as a high-powered civil-military forum to facilitate investment. While positioned as a flagship reform initiative, the GCD raises serious concerns about its untested transparency and accountability provisions. The report flags broad legal immunities granted to SIFC officials and the council’s authority to exempt projects from regulatory requirements as significant governance risks. It calls for the publication of comprehensive annual reports detailing all investments facilitated, concessions granted, and the rationale behind them, an unprecedented demand for transparency.
The judiciary is identified as another critical bottleneck, with more than two million pending cases nationwide. Recent constitutional amendments affecting judicial appointments and structures have generated controversy, raising concerns about executive influence despite government claims of efficiency gains. Similar credibility issues afflict the National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA). The GCD cites findings that NAB has, at times, exceeded its mandate and pursued politically motivated cases, damaging public trust and creating a climate of fear within the bureaucracy. Despite significant reported recoveries, conviction rates remain low, prompting the IMF to call for fundamental reforms to ensure independence, rule-based enforcement, and an end to selective accountability.
Importantly, the GCD does not attempt to identify when corruption “began” in Pakistan. It treats corruption and governance failures as persistent, structural, and long-standing issues, rather than as recent or episodic phenomena. The assessment is forward-looking and systemic, not a historical audit of past scandals.
In perhaps its most consequential conclusion, the IMF estimates that Pakistan could raise its GDP by 5-6.5 per cent within five years by implementing governance reforms, particularly in procurement, tax policy, judicial performance, and rule-based oversight. Without such reforms, however, Pakistan risks remaining trapped in a cycle of economic stagnation, political instability, and chronic dependence on external bailouts. In recent years, persistently low GDP growth has further undermined economic performance and public welfare, particularly for the youth. Sluggish growth has constrained overall development, narrowed employment opportunities, and weakened social mobility, exacerbating inequality and deepening economic frustration across large sections of the population.
Despite the gravity of the findings, the report has elicited a minimal institutional response. The government’s reaction has been notably muted, treating the diagnosis as routine rather than as an urgent call for reform. This indifference is deeply troubling.
The GCD calls for more than incremental adjustments. It warrants a national debate and the establishment of a high-powered, independent technical body to evaluate its findings, conduct rigorous performance audits of key ministries and institutions, and hold those responsible for poor governance and corruption accountable. Corruption and governance are inextricably linked; addressing one without addressing the other is futile. Without decisive action, Pakistan’s economic fragility and institutional decay will only deepen, with the heaviest costs borne by the country’s most vulnerable citizens.
Based in Islamabad, the writer is the former Chairman of the National Tariff Commission, Ex-Consultant NAB, and the World Bank. He can be reached at abbasraza55@gmail.com
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