The Governance and Corruption Diagnostic Assessment (GCDA) conducted by the International Monetary Fund (IMF) provides a sobering evaluation of governance in Pakistan. While the findings may not be new, the report marks a departure from the IMF’s conventional focus on monetary and fiscal policies, traditionally seen as the “intensive care” phase for economic stability.
Instead, the report delves into the deeper, systemic flaws rooted in the manipulation of power and resources by influential public and private actors for personal gain. The IMF, however, remains silent on the impact that measures imposed at its behest have on the formalisation of the economy and in controlling theft of energy.
The GCDA examines several critical domains: rule of law, regulatory constraints, fiscal policy and tax regime, public procurement, and state-owned enterprises. Collectively, these domains reveal a governance system characterised by political patronage, fragmented institutions, and weak accountability mechanisms.
Elite capture and policy distortion
One of the report’s central findings is the widespread elite capture that distorts policymaking and diminishes genuine competition. In vital sectors such as real estate, energy, agriculture, and sugar (and one could think of several others not cited in the report), individuals and groups with strong connections exert disproportionate influence over policy and regulatory decisions.
IMF’s diagnostic assessment exposes how entrenched elite capture and weak institutions continue to undermine Pakistan’s governance and economic reform efforts
Rather than promoting productivity and serving millions of Pakistanis, incentives are crafted to safeguard the interests of a few elites. The report surprisingly omits a discussion on long-term tariff protection that restricts exports and limits choice for domestic consumers. Tariff reforms are traditionally a cornerstone of IMF and World Bank recommendations. The government has declared its intent in this direction, but has faced strong pushback from protected sectors.
Economic consequences of governance failures
The report emphasises that governance distortions result in significant economic losses. The IMF estimates that implementing governance reforms alone could boost Pakistan’s GDP by 5–6.5 per cent over five years. The consequences of inefficiency, resource leakage, and arbitrary decision-making are borne not by the privileged elite, but by ordinary citizens who face inadequate public services, rising inflation, and diminishing opportunities.
Fiscal governance emerges as a particularly vulnerable area in the assessment. The report identifies considerable discrepancies between budgeted allocations and actual expenditures, as well as non-transparent reallocation methods. Internal controls within government ministries are weak, and procurement processes remain highly discretionary. The limited implementation of modern e-procurement systems further hampers transparency and increases the scope for human intervention.
Tax regime vulnerabilities
Significant vulnerabilities are also present within the tax regime. However, the report does not discuss the IMF’s own role in imposing elevated tax rates on those already participating in the formal economy, which unintentionally encourages individuals and businesses to seek ways to avoid taxation.
It also undermines scale and growth in the formal sector and encourages taxpayers to seek investment and jobs abroad. This omission in the report highlights a critical gap in the IMF’s analysis of how external policy prescriptions contribute to persistent issues within Pakistan’s fiscal governance structure. The Federal Board of Revenue’s audit and enforcement systems are found to be susceptible to interference, enabling both evasion and selective enforcement.
SOEs and the rule of law
State-owned enterprises (SOEs) are identified as a major risk. The IMF highlights ongoing political interference in SOE operations, weak governance at the board level, and a lack of financial and operational transparency. Many SOEs, particularly in the energy sector, continue to drain fiscal resources, with circular debt remaining a persistent issue. The report omits a discussion on the impact of high energy tariffs imposed by the IMF on theft and distribution efficiency.
The assessment of the rule of law is equally troubling. Pakistan’s judicial system grapples with extensive backlogs, outdated legislation, and procedural delays, making contract enforcement unpredictable. This unpredictability acts as a major deterrent for both local and foreign investors.
The political will to reform
To address these challenges, the IMF proposes a 15-point reform agenda. While these recommendations reflect long-standing advice from experts, rather than introducing radically new concepts, key recommendations include digitising federal procurement processes, simplifying and rationalising taxes, strengthening internal audits, enhancing parliamentary oversight, and resolving overlapping regulatory responsibilities. It also calls for better co-ordination among anti-corruption agencies and enhanced anti-money laundering and countering financial terrorism.
The report identifies a lack of political will as the most significant barrier to reform. Implementing these recommendations requires confronting entrenched interests that benefit from the status quo.
Historically, attempts at reform that threaten established networks have faced both overt and covert resistance. Consequently, governance reform in Pakistan will demand more than technical adjustments. Dismissing this diagnosis as merely an external conditionality or for its lack of originality would be a grave mistake. Addressing these gaps must be embraced as a national imperative.
The writer is the former CEO of Unilever Pakistan and the Pakistan Business Council
Published in Dawn, The Business and Finance Weekly, December 1st, 2025
