The International Monetary Fund (IMF) has cautioned that persistent corruption and weak institutions continue to undermine Pakistan’s economic development, even as the country shows signs of stabilisation under the ongoing Extended Fund Facility (EFF).
The warning comes in the IMF’s Governance and Corruption Diagnostic Assessment (GCDA), published as a precondition for the Fund’s executive board to approve a $1.2 billion disbursement next month under the $7 billion programme.
Launched at the government’s request in January 2025, the assessment was conducted by an interdepartmental IMF team with support from World Bank experts. Over eight months and two field missions, the team worked with federal authorities and stakeholders to identify governance gaps, corruption vulnerabilities, and priority reforms.
Guided by the IMF’s 2018 Framework on Enhanced Engagement on Governance, the report focuses on five critical areas that included fiscal governance, market regulation, financial sector oversight, anti-money laundering and combating terror financing, and rule of law with an emphasis on contract enforcement, property rights and judicial integrity.
The IMF stressed that the exercise was confined to federal-level governance issues, did not address provincial concerns, and were based on data collected up to April 2025, excluding reforms introduced thereafter.
Despite governance concerns, IMF acknowledged “significant progress” under the EFF. Pakistan recorded a primary surplus of 2.0 percent of GDP in the first half of FY25, close to the 2.1 percent target. Inflation fell to a historic low of 0.3 percent in April, while foreign exchange reserves climbed to $10.3 billion at end-April, up from $9.4 billion in August 2024. Reserves are projected to reach $13.9 billion by June 2025.
The report warned that longstanding challenges continue to weigh on Pakistan’s trajectory. Living standards lag behind peer countries in South and Southeast Asia due to underinvestment in human and physical capital, distortions from the state’s large economic role, fiscal weaknesses, and recurrent macroeconomic pressures.
“Corruption is a persistent challenge in Pakistan, with significant adverse implications for economic development,” the report stated. It highlighted how citizens are often forced to make payments to officials for basic services, while elite groups capture public benefits for private gain.
The IMF cited the 2019 sugar export decision under the PTI government as an example of elite influence, and noted that the National Accountability Bureau’s recovery of Rs5.3 trillion between January 2023 and December 2024 represents only a fraction of the losses caused by corruption.
While Pakistan’s removal from the FATF grey list was noted as progress, the IMF criticised slow enforcement of punishments against money laundering offenders.
The GCDA outlined a 15-point reform agenda, urging immediate action to strengthen governance and accountability. Key recommendations included ending special privileges in government contracts, shifting all procurement to e-governance within 12 months, establishing strict parliamentary oversight of financial powers, expanding transparency and public access to fiscal information, and strengthening anti-corruption institutions.
The IMF projected that implementing governance reforms could boost Pakistan’s GDP by five percent to 6.5 percent over five years, based on cross-country experience in emerging markets.