Governance reforms could add up to 6.5% to GDP over five years, says lender in crucial report
WASHINGTON, NOV 20 (DNA): The International Monetary Fund’s (IMF) Governance and Corruption Diagnostic Assessment (GCDA) on Pakistan, has warned that persistent corruption and weak institutions continue to undermine the country’s economic development even as it stabilises under an Extended Fund Facility (EFF).
Publication of the report is a precondition for the IMF executive board’s approval of a $1.2 billion disbursement next month under the $7 billion programme.
According to the executive summary, the diagnostic was launched at the government’s request and began in January 2025.
An interdepartmental IMF team, joined by World Bank experts, worked over eight months and two field missions with federal authorities and other stakeholders to identify governance gaps, corruption vulnerabilities with macroeconomic consequences, and priority reforms to improve performance, accountability and integrity.
Guided by the IMF’s 2018 Framework on Enhanced Engagement on Governance, the assessment focuses on corruption risks and governance weaknesses at the federal level in five critical areas: fiscal governance, including public financial management, procurement, state assets and tax policy; market regulation; financial sector oversight; anti-money laundering and combating the financing of terrorism (AML/CFT); and the rule of law, with particular emphasis on enforcement of contracts, protection of property rights and judicial integrity.
The assessment also reviews the legal and organisational anti-corruption framework and how anti-corruption strategies are aligned with the identified risks.
The IMF underlined that, in line with its framework, the exercise is confined to corruption and governance issues at the federal level and does not address wider governance concerns among and between provinces.
The report is based on information gathered before and during April 2025 and does not capture reforms introduced after that date. Publication of the GCDA by the end of August 2025 is also a structural benchmark under the 37-month, $7 billion EFF approved on September 25, 2024.
Stabilisation under EFF, but weaknesses persist
The Fund said policy efforts under the EFF have already delivered “significant progress” in stabilising the economy and rebuilding confidence.
It cited a primary surplus of 2.0% of GDP in the first half of FY25, keeping Pakistan broadly on track to meet the 2.1% of GDP target for end-FY25, a historic low inflation reading of 0.3% in April, and an improvement in gross foreign exchange reserves to $10.3 billion at end-April from $9.4 billion in August 2024, with reserves projected to rise to $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term.
At the same time, the report warns that longstanding structural challenges continue to weigh on Pakistan’s economic trajectory. While past IMF-supported programmes have generally succeeded in stabilising the economy, the IMF and the government acknowledge that reforms have not been sufficiently institutionalised to address underlying weaknesses.
Living standards have failed to keep pace with those of peer countries in South and Southeast Asia, the report notes, reflecting underinvestment in human and physical capital, economic distortions linked to the state’s large role in the economy, structural fiscal weaknesses and recurrent macroeconomic pressures that have increased financing needs and external vulnerabilities.
IMF flags systemic governance and corruption risks
“Corruption is a persistent challenge in Pakistan, with significant adverse implications for economic development,” the report states. It says indicators reflect weak control of corruption over time, with negative consequences for the effectiveness of public spending, revenue collection and trust in the legal system.
The IMF notes that Pakistanis are often compelled to make continuous payments to officials to obtain basic services, while funds lost to corruption could otherwise support higher production and development.
While vulnerabilities exist at all levels of government, the IMF finds that the most economically damaging manifestations involve “privileged entities” that exert influence over key economic sectors, including those owned by or affiliated with the state.
The report says political and economic elites have obstructed economic development by seizing control of policies and capturing public benefits for their own gain.
It cites the 2019 decision under the Pakistan Tehreek-e-Insaf (PTI) government to permit sugar exports as an example of how elite interests can shape policy, and notes that from January 2023 to December 2024 the National Accountability Bureau’s (NAB) recovery of Rs5.3 trillion represents only a small portion of the economic loss caused by corruption.
The diagnostic highlights systematic governance weaknesses across state functions that expose Pakistan to corruption risk. It points to shortcomings in budgeting and reporting of fiscal information and in the management of public financial and non-financial resources, particularly in capital spending, public procurement and the oversight of state-owned enterprises (SOE).
The report observes that large discrepancies between budget allocations and actual expenditures raise questions about fiscal transparency, and that districts under the influence of the government and bureaucracy tend to receive more development funds.
It describes the tax system as overly complex, with weak administration and oversight contributing to corruption vulnerabilities. The IMF says complexities in the tax regime reflect broader state weaknesses, adding that a decline in the tax-to-GDP ratio is a sign of corruption risks and that it is necessary to hold tax officers accountable for their performance.
Market regulation is described as being marked by multiple regulators issuing overlapping rules through opaque processes, high compliance costs and perceptions of regulatory capture.
Despite the existence of multiple accountability institutions, the report notes, Pakistan has faced systemic challenges in enforcing accountability on individuals and organisations for non-performance and malfeasance in the application of business regulations.
In the judicial sector, the report cites organisational complexity, large case backlogs, antiquated laws and questions over the integrity and independence of judges and judicial personnel as factors undermining reliable enforcement of contracts and protection of property rights.
It describes Pakistan’s judicial sector as structurally complex and says the complexity and delays in the system affect economic activity. Reliance on courts to enforce economic rights is discouraged, it says, by delays and concerns over institutional integrity.
Fragmentation among accountability institutions and limitations in their operational independence further exacerbate corruption risks.
The IMF says that all efforts against corruption so far have not proved fully effective, and that officials often hesitate to take important decisions. While recent AML/CFT reforms have enabled Pakistan’s removal from the Financial Action Task Force (FATF) grey list, the report notes that Pakistan’s implementation of punishments under FATF-related targets has been slow, with few decisions against individuals involved in money laundering.
Reform roadmap and potential growth gains
The report sets out a series of recommendations ranging from immediate and short-term steps to medium- and long-term structural reforms aimed at strengthening governance, reducing corruption vulnerabilities and supporting sustainable, private sector-led growth.
The IMF calls for the immediate initiation of a 15-point reform agenda and says improving governance, accountability and integrity along the lines recommended would yield significant economic benefits.
Key recommendations include ending special privileges granted to major public institutions in government contracts, shifting all government procurement to an e-governance system within 12 months, and establishing strict parliamentary oversight of the government’s financial powers. The report also urges greater transparency and accountability in policymaking and implementation, including more open access to fiscal information.
It emphasises the need for reforms in anti-corruption institutions and for stronger, more consistent enforcement, including more effective use of AML/CFT tools against corruption-related money laundering.
These measures 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 notes that Pakistan has already shown its capacity to design and implement technically demanding reforms, citing the enhancement of central bank independence, adoption and initial implementation of the law, the cancellation of regulations to improve the business environment and the rollout of the National Database and Registration Authority’s digital ID and biometric systems.
The recommendations in the GCDA are framed as complementary to the government’s ongoing reform agenda and aimed at reinforcing its momentum and sustainability.
Based on cross-country experience in emerging markets, IMF analysis projects that Pakistan could achieve a 5% to 6.5% increase in GDP over five years by implementing a package of governance reforms aligned with those set out in the report, including improvements in governance and anti-corruption, business regulation and the regulation of foreign trade.
: The International Monetary Fund's (IMF) Governance and Corruption Diagnostic Assessment (GCDA) on Pakistan,){kind=link}