Pakistan’s Self-Inflicted Diagnosis

Inside the IMF Report That Exposes Systemic Elite Capture

In November 2025, the Government of Pakistan did something unusual: it published a report that reads like a prosecution brief against itself. The International Monetary Fund’s “Governance and Corruption Diagnostic Assessment” is 186 pages of institutional autopsy, and the patient is in critical condition. This was not an ambush. Pakistan requested this diagnostic as part of its 37-month, $7 billion Extended Fund Facility with the IMF. Publication was written into the programme as a structural benchmark, which means the government knew it was coming and agreed to make it public anyway.

What the report reveals is uncomfortable in the extreme. Corruption in Pakistan is not a series of scandals waiting to be cleaned up by the next accountability drive. It is, the IMF concludes, “macro-critical” meaning it is baked into the structure of the economy and the state, determining who prospers and who does not, why growth remains anaemic, and why the country keeps returning to the Fund every few years with its hand out.

The diagnostic was written by an interdepartmental IMF team, with World Bank participation, following field missions in February and April 2025. They met the Chief Justice, the Governor of the State Bank, the Chairman of the Federal Board of Revenue, the head of the National Accountability Bureau, ministers, regulators, bankers, civil society groups and business leaders. The result is not a hatchet job or an opposition talking point. It is the system holding up a mirror to itself, and the reflection is damning.

Corruption as Economic Policy

The IMF does not bury the lede. Right up front, it states that governance failures and corruption in Pakistan have “significant adverse implications” for everything that matters: public spending, tax collection, investment, competition, and trust in institutions. The numbers bear this out. Pakistan ranks 133rd out of 180 countries on Transparency International’s Corruption Perceptions Index, with a score of 29 out of 100. On the World Bank’s Control of Corruption indicator, it sits in the bottom quartile globally and has barely moved in two decades.

These rankings are not abstract. The Fund estimates that if Pakistan implemented a serious, sustained package of governance and anti-corruption reforms, GDP could be 5 to 6.5 percent higher within five years than on the current trajectory. That is not a marginal gain it is the difference between stagnation and transformation, between another lost decade and a chance at escaping the cycle of debt and crisis.

But here is the catch: the reforms required would dismantle the very structures that keep Pakistan’s political and economic elite in power. Which is why, despite 23 IMF programmes since 1958, the country keeps circling back to the same emergency room.

A State-Dominated, Insider Economy

To understand how deep the rot goes, start with the sheer size of the state’s footprint in Pakistan’s economy. Federal state-owned enterprises alone account for around 12 percent of GDP. Their assets are worth roughly 48 percent of GDP. Let that sink in: nearly half the country’s total economic output, tied up in entities that are often inefficient, overstaffed, and bleeding losses.

But the distortion does not stop there. The banking sector, which should be financing private enterprise and innovation, is overwhelmingly oriented toward the government. About 80 percent of total bank lending goes to the government and state-owned entities. Around 64 percent of banking sector assets are similarly tied up. For the genuinely private sector small businesses, startups, entrepreneurs without political connections credit is scarce and expensive.

This creates an economy where the most valuable asset is not a good product, a skilled workforce, or an innovative idea. It is access to the state. Access to contracts. Access to subsidised credit. Access to tax exemptions. Access to the regulators who can make your problems go away or bury your competitors.

The consequences are measurable. Pakistan’s exports as a share of GDP have fallen from around 16 percent in 1990 to roughly 9 percent today. Compare that with Bangladesh, Vietnam, or any of the East Asian tigers, where export-led growth has been the engine of poverty reduction and development. The reason is simple: Pakistan’s protected sectors cement, sugar, textiles on subsidies, energy firms with guaranteed returns face little pressure to compete internationally. Why bother with the hard work of global markets when you can extract rents at home?

The Budget as Political Theatre

Every year, Pakistan’s Parliament goes through the ritual of debating and passing a federal budget. Every year, the numbers in that budget turn out to be fiction.

The IMF lays out the evidence in painful detail. In fiscal year 2024–25 alone, actual expenditure overshot the approved budget by 9.4 trillion rupees. That is not a typo. It is five times the previous year’s overrun. These deviations were not debated and approved in advance by Parliament. They were regularised after the fact through supplementary grants, presented essentially as done deals.

This pattern is not new. The diagnostic notes that “large deviations from the approved budget have been a persistent feature” of Pakistan’s fiscal management. Ministries spend knowing they will be bailed out. The Finance Ministry accommodates them because the political cost of saying no is too high. And Parliament is left to rubber-stamp overruns that can exceed 10 percent of the original budget.

What this means in practice is that the budget which should be the single most important expression of national priorities, debated openly and binding on government is actually just an opening bid. The real allocations happen in backrooms, through in-year reshuffles, emergency grants, and executive discretion. Money earmarked for hospitals gets diverted to subsidies for influential industries. Funds for schools disappear into bailouts for state-owned enterprises. And citizens are none the wiser until the Auditor General’s report surfaces months later, when it is too late to do anything about it.

As the IMF puts it drily, “the budget approval process does not provide effective control over government expenditures.” Parliament’s constitutional power of the purse has been reduced to a formality.

Public Investment: A Graveyard of Unfinished Projects

Drive through any Pakistani city or town and you will see them: half-built flyovers, stalled road widening schemes, foundations of hospitals and schools that never materialised. The Public Sector Development Programme is supposed to channel resources into growth-enhancing infrastructure. Instead, it has become what the IMF calls “a large overhang of ongoing projects.”

The numbers are staggering. As of the diagnostic, the federal PSDP portfolio contained projects with a combined estimated cost of 10.7 trillion rupees. The average annual allocation in recent years has been around 1.1 trillion rupees. Even if no new projects were added an absurd assumption given political incentives it would take nearly a decade to clear the backlog at current funding levels.

The result is predictable: chronic delays, cost escalations, and substandard execution. The report notes the absence of “standardised criteria and transparent processes for project selection and prioritisation.” Translation: projects get added based on political clout, not economic merit. An MP lobbies for a scheme in their constituency. A minister champions a pet project. And the Planning Commission, which should enforce discipline, lacks the authority or political backing to say no.

Even more troubling is the proliferation of parallel mechanisms that bypass PSDP oversight altogether. The Special Investment Facilitation Council, launched in 2023, initially operated outside standard procurement and transparency rules. Proposed vehicles like a sovereign wealth fund and special purpose infrastructure companies raised similar red flags. The IMF warns that these carve-outs “raise issues of transparency and accountability,” creating zones where normal rules do not apply and scrutiny is minimal.

Procurement: Rigged from the Start

Public procurement is supposed to ensure that taxpayer money buys goods and services at competitive prices. The reality, as the IMF documents, is a system rigged in favour of insiders.

Pakistan’s procurement framework is “fragmented across multiple laws” and shot through with preferences. State-owned enterprises and selected charities receive “preferential treatment.” Direct contracting which bypasses competitive bidding is overused. Documentation is weak. Oversight is patchy. These are precisely the conditions under which corruption thrives: complexity that creates confusion, discretion that enables favouritism, and weak accountability that allows abuses to go unpunished.

The handling of the COVID-19 stimulus package is instructive. When the Auditor General reviewed how the 1.24 trillion rupee emergency package was spent in 2020, it found “weak financial controls and record-keeping, as well as procurement rule violations.” This was money meant to support citizens and businesses during an unprecedented health and economic crisis. Yet the state allowed basic safeguards to collapse. The implicit message to rent-seekers was clear: in a crisis, the rules bend, and opportunities multiply.

A Tax System Built for Evasion

Pakistan’s tax-to-GDP ratio has been stuck around 10 percent for years. For a country of 240 million people, with enormous development needs and chronic fiscal deficits, this is catastrophic. The IMF identifies the root cause: the tax system has been “shaped by powerful interest groups” that secure exemptions, special regimes, and lenient enforcement.

The scale of the giveaway is breathtaking. Tax expenditures revenue the government voluntarily forgoes through exemptions and reduced rates amounted to an estimated 4.61 percent of GDP in fiscal year 2023. That is not a rounding error. It is tens of billions of dollars every year, handed back to favoured sectors and actors instead of funding public services.

Who benefits? The usual suspects: agriculture, where large landowners pay minimal taxes. Real estate, where speculative gains go largely untaxed. Export industries that enjoy concessional regimes. Meanwhile, the burden falls disproportionately on salaried workers and consumption taxes, which hit the poor hardest.

The Federal Board of Revenue sits at the centre of this system. The IMF describes it as an institution with “significant autonomy” but “weak internal controls.” Field offices wield enormous discretion over how tax laws are applied. Internal audit is underdeveloped. And core IT and data systems have been outsourced to a private company, Pakistan Revenue Automation Limited, creating what the report terms “potential vulnerabilities” in data security and integrity.

In plain language: the institution charged with collecting taxes operates with minimal oversight, giving individual officers huge power over taxpayers’ fortunes. In a system like this, corruption is not a bug it is an entirely rational response to the incentive structure.

Sugar: The Cartel That Owns the State

The sugar sector gets a dedicated text box in the IMF report, and deservedly so. Sugar is a staple in every Pakistani household, and its price is politically explosive. The mills that produce it are often owned by sitting or former politicians, or their close relatives. And they have used that power to turn the sector into a textbook case of state capture.

The pattern is simple and brazen. Mill owners secure high support prices from the government, guaranteeing their margins. They lobby for protective tariffs to keep out cheaper imports. They obtain export licences when domestic prices are low and block exports when prices rise, creating artificial scarcity. They hoard stocks and coordinate supply to manipulate prices.

In 2020, after yet another sugar crisis that saw prices spike and shelves go empty, the Federal Investigation Agency launched a detailed inquiry. What it found was collusion, hoarding, price manipulation, and money laundering through fake accounts and shell entities. Prominent political names surfaced. The findings were, in the IMF’s words, “damning.”

Yet the basic power structure of the sugar cartel remains intact. Investigations have led to few convictions. Structural reforms have stalled. The mills continue to extract rents, and consumers continue to pay the price. The lesson to other sectors is unmistakable: if you have enough political clout, even a public scandal will not fundamentally threaten your business model.

Cement: Subsidised, Then Gouged

The sugar story has a twin in cement. In 2020, the Competition Commission of Pakistan investigated major cement producers and found clear evidence of collusion. The firms had coordinated to raise prices by 45 to 50 rupees per bag, imposing an estimated cost of 40 billion rupees on consumers.

Here is the kicker: this happened just after the same firms had received a 25 percent cut in federal excise duty, ostensibly to support investment and growth. So the public subsidised them through a tax break, and they repaid the favour by colluding to overcharge on every bag of cement used to build homes, schools, mosques, and roads.

The pattern is depressingly consistent across sectors: protection and subsidies on the way in, cartel behaviour and consumer gouging on the way out. And the Competition Commission, despite having the legal authority to act, faces political and institutional constraints that limit its effectiveness.

Justice Delayed, Justice Destroyed

The rule of law is supposed to be the ultimate check on corruption and abuse of power. In Pakistan, it is more often an obstacle course.

On World Justice Project indicators, Pakistan ranks in the bottom quartile globally. On the World Bank’s rule of law index, it performs below the average for lower-middle-income countries. Citizens routinely rank the judiciary and police among the most corrupt institutions they interact with.

The problems are multiple and compounding. Case backlogs are massive, with trials dragging on for years or decades. Procedural codes are outdated. Jurisdiction is fragmented across a bewildering array of specialised courts and tribunals. Appointment and tenure practices for judges lack transparency. Resources are stretched thin.

The effect is paralysis. When enforcing a contract or defending property rights becomes a multi-year gamble with unpredictable outcomes, businesses and individuals turn to informal mechanisms. They use political connections. They pay bribes. They settle disputes through community or kinship networks. Or they simply absorb losses and move on.

This has real economic costs. Foreign investors cite judicial unpredictability as a major deterrent. Domestic firms avoid long-term contracts and formal partnerships when they can. Survey data cited in the report shows that a significant share of businesses pay “informal payments” to expedite cases or secure favourable rulings. In such an environment, law is not a neutral arbiter it is a weapon wielded selectively by those with resources and access.

Accountability as a Political Weapon

On paper, Pakistan has built an impressive anti-corruption arsenal. The National Accountability Bureau wields sweeping investigative and prosecutorial powers. Provincial Anti-Corruption Establishments operate across the country. The Financial Monitoring Unit tracks suspicious transactions. Special courts handle accountability cases. After the Financial Action Task Force grey-listing scare, anti-money laundering frameworks were significantly upgraded.

Yet the IMF’s assessment is withering. Enforcement has been “fragmented” and “politicised.” There are widespread “perceptions of selective accountability.” These are not just perceptions. The Supreme Court itself, in observations cited in the diagnostic, has raised concerns about NAB’s functioning. A 2024 task force set up by the Ministry of Law and Justice documented instances of “abuse of powers” and selective targeting of opponents.

Public opinion data tells the same story. The report cites survey findings showing that around 68 percent of respondents believe institutions like NAB and the FIA are used for political purposes, not as neutral guardians of integrity.

NAB’s own statistics underscore the paradox. The bureau claims recoveries of 5.31 trillion rupees between 2023 and 2024 an enormous figure. Yet conviction rates remain stubbornly low. Corruption-related money laundering prosecutions are “limited” relative to the scale of the problem. And the recent decision to raise NAB’s jurisdictional threshold to 500 million rupees, with smaller cases shifted to the FIA and provincial bodies, has created enforcement gaps and jurisdictional confusion.

The result is a system where senior officials are terrified of making decisions, fearing they will later be targeted. Meanwhile, the public grows cynical, viewing anti-corruption campaigns as political theatre. This is not the absence of institutions it is their weaponisation.

Money Laundering: Compliance Without Enforcement

Pakistan’s exit from the FATF grey list in 2024 was widely celebrated as a governance victory. And to be fair, significant improvements were made: the Financial Monitoring Unit was strengthened, suspicious transaction reporting improved, and politically exposed persons are now systematically identified in the banking system.

But the IMF digs beneath the surface and finds troubling gaps. “Implementation of the AML/CFT framework in relation to corruption-related ML remains a challenge,” the report states. Suspicious transaction reports are filed, but few lead to serious financial investigations focused on corruption. Beneficial ownership data exist, but remain difficult to access and verify in practice. PEP monitoring is in place, but actual scrutiny of transactions is uneven.

The report notes that NAB has “expressed frustration” with limited international cooperation on asset recovery, particularly involving offshore holdings. The Panama Papers, the Pandora Papers, the Dubai leaks all have exposed Pakistani elites stashing wealth abroad. Yet mutual legal assistance requests go unanswered, and asset recovery efforts fizzle.

The implication is stark: Pakistan has built the formal architecture demanded by international watchdogs, but the machinery does not fully engage. Financial intelligence does not consistently translate into prosecutions. Asset declarations required of public officials are “fragmented” and “rarely subjected to verification.” Conflict-of-interest rules are “patchy” and rely on self-reporting, with no strong enforcement.

In a political culture built on patronage networks, revolving doors between public office and private business, and the use of state resources to reward loyalty, these gaps are not accidents they are structural features.

The Path Forward - If There Is the Will

The diagnostic concludes with 19 priority recommendations and a detailed reform matrix. The prescriptions are technically sound: simplify the tax code and strengthen FBR governance; enforce budget discipline and rationalise the PSDP; clean up procurement and eliminate SOE preferences; grant real independence to the Auditor General; publish and verify asset declarations; depoliticise anti-corruption agencies; improve judicial efficiency and integrity.

None of these ideas are new. Versions of them have appeared in every major governance report on Pakistan for the past two decades. The question is not what to do it is whether Pakistan’s power structure has any incentive to do it.

The sugar cartel still stands despite damning FIA findings. Tax expenditures continue to bleed revenue despite repeated IMF programmes demanding reform. Accountability bodies remain tools of political warfare. The budget process remains a charade. SOEs continue to dominate and distort the economy.

The Fund’s bottom line is blunt: without dismantling the ecosystem of capture that has grown around the Pakistani state, “governance and corruption vulnerabilities will continue to pose macro-critical risks.” Every stabilisation will be temporary. Every reform will be partial. Every crisis will be a prelude to the next.

A Republic in Question

What makes this diagnostic so uncomfortable is not that it exposes new scandals Pakistanis live with corruption every day. It is that the report confirms, with official data and institutional access, that the system is working exactly as designed.

The gap between laws on paper and practice on the ground is not implementation failure. It is the operational logic of a state organised around patronage, rent extraction, and selective enforcement. The question the IMF has placed on the table is whether Pakistan, as currently constituted, can perform the basic functions of a modern republic: provide a level playing field, deliver services based on need rather than connections, and hold power accountable under law.

The answer, as of November 2025, appears to be no. Whether the country’s political class and citizens are prepared to reckon with that reality and what it would take to change it is the question everything else hinges on.

Source

Pakistan: Governance and Corruption Diagnostic Assessment Report