Pakistan’s Deep Governance Faults Exposed as IMF Urges Urgent Institutional Overhaul

Pakistan’s IMF–World Bank–supported governance diagnostic finds that corruption is systemic across fiscal management, regulation, justice, and accountability institutions, driven by opaque rules, discretionary authority, and weak oversight. It calls for comprehensive, sequenced reforms to strengthen transparency, rule of law, regulatory integrity, and anti-corruption enforcement to restore public trust and support sustainable growth.

The International Monetary Fund’s Legal Department, working in partnership with the World Bank and Pakistan’s federal authorities, has released a comprehensive governance and corruption diagnostic that offers one of the clearest assessments to date of the country’s institutional fragilities. Developed by an IMF team led by Joel Turkewitz and supported by researchers including Jonathan Pampolina, Jesper Berg, Frank van Brunschot, Kuena Diaho, Fahad Hasan, Yasemin Hurcan, Mohammed Sultan Yousuf Janahi, Zhentu Liu, Peter Mullins, Nusula Nassuna, Wajahat Ali Shah, Sally Toms, Miguel Vieira Toro, and Christophe Waerzeggers, the report is rooted in extensive field consultations and inter-agency analysis. Its publication comes at a pivotal moment as Pakistan undertakes reforms under a US$7 billion Extended Fund Facility and confronts deep economic vulnerabilities tied to long-standing governance shortcomings.

A System Built on Complexity, Discretion, and Institutional Drift

The diagnostic portrays corruption in Pakistan not as sporadic wrongdoing but as a structural feature embedded across state functions. Governance indicators consistently place the country near the bottom globally in contract enforcement, property rights protection, and corruption control. According to the report, the root of these weaknesses lies in a heavily state-dominated economic model characterized by opaque regulations, wide discretionary authority, and blurred institutional mandates. State-owned enterprises retain deep political and commercial influence, while overlapping regulatory frameworks create fertile ground for rent-seeking and regulatory capture. This environment enables privileged actors to benefit from informal access and favoritism, leaving businesses and ordinary citizens facing uncertainty and inconsistent application of rules.

Fiscal and Regulatory Weaknesses Fuel Economic Instability

The report devotes considerable attention to Pakistan’s fiscal governance, which it describes as structurally strained and chronically vulnerable to corruption. The tax system is opaque and fragmented, with the revenue authority granted broad discretionary powers and insufficient oversight. Customs operations remain porous, contributing to low tax-to-GDP ratios. Public financial management is undermined by the habitual use of supplementary grants, unreliable budget forecasting, and procurement systems that fail to ensure transparency, especially in dealings involving SOEs. Similar distortions plague market regulation: businesses encounter exhaustive and overlapping requirements, regulators lack independence, and politically connected firms enjoy preferential treatment. These conditions, the IMF warns, suppress private sector development and deter investment.

Strained Accountability Systems and a Faltering Rule of Law

Pakistan’s accountability architecture is depicted as overstretched and susceptible to influence. While the country succeeded in exiting the FATF grey list through improvements in AML/CFT frameworks, enforcement remains inconsistent. Corruption-related money laundering is seldom effectively prosecuted, and coordination across agencies is weak. The judicial system is hampered by severe case backlogs, fragmented jurisdictions, and widespread perceptions of corruption. Commercial disputes drag on for years, eroding confidence among domestic and foreign investors. Anti-corruption bodies such as the National Accountability Bureau, Federal Investigation Agency, and provincial establishments suffer from overlapping mandates, inefficient resource use, and a long history of political interference. Meanwhile, the Auditor General’s findings rarely translate into corrective action, and public access to information remains limited, further reducing transparency.

A Roadmap for Reform and the Path to Public Trust

The IMF team concludes that Pakistan requires a comprehensive, sequenced reform agenda capable of addressing immediate vulnerabilities while strengthening long-term institutional resilience. Priority actions include creating a dedicated tax policy office, simplifying taxes, improving internal controls within revenue authorities, and setting up an independent internal affairs unit to address corruption. Enhancing budget credibility will require tighter controls on supplementary grants, strict procurement enforcement, and greater transparency in public investment and asset management. Regulatory reforms should focus on rationalizing rules, digitizing compliance systems, and reinforcing the independence and capacity of regulators.

Revitalizing the rule of law is framed as equally essential, requiring modernization of legal frameworks, clearance of judicial backlogs, transparent monitoring of court performance, and reforms to safeguard judicial independence. AML/CFT progress hinges on aligning resources with key risks, strengthening beneficial ownership transparency, and improving inter-agency and international cooperation.

Finally, the report urges a shift toward prevention-focused anti-corruption strategies. Publishing asset declarations under new legislation, improving leadership selection in accountability bodies, professionalizing investigative and prosecutorial methods, and expanding access to public information are highlighted as critical steps. The authors emphasize that durable progress depends on collaboration across government, civil society, and the private sector to rebuild trust, reduce corruption, and support sustainable economic growth.