Pakistan’s governance landscape stands at a critical inflexion point, and the newly released International Monetary Fund (IMF) Governance and Corruption Diagnostic Report (November 2025) offers the most comprehensive blueprint yet on the depth, causes and consequences of systemic governance weaknesses.
Requested by the Government of Pakistan and conducted jointly by IMF departments with World Bank participation, the report spans nearly every core state function, from tax administration and procurement systems to market regulation, judicial performance and anti-corruption enforcement. The findings are sobering, but they also chart a clear path toward reforms that could reshape Pakistan’s economic and administrative future.
The report essentially concludes that corruption in Pakistan is persistent, multi-layered and macro-critical, affecting growth, revenue performance, investment, public trust, and overall state capacity to deliver services. Despite recent macroeconomic stabilisation under the IMF programme, the fundamental institutional architecture remains vulnerable. According to the IMF, these vulnerabilities are not merely administrative inefficiencies but structural constraints that actively undermine Pakistan’s reform momentum and economic potential.
The report opens with a stark reminder: Pakistan’s performance on global governance, rule of law and corruption indicators has barely improved over the past two decades. The globally referenced indices consistently place Pakistan in the lower tiers for control of corruption, rule of law and state capture. The public perception is also consistent: corruption remains one of the top three most severe issues affecting citizen trust in government institutions.
Beyond perception, the report quantifies the economic consequences of these weaknesses. Private investment and foreign direct investment (FDI) have stagnated, and productivity gains have slowed. Pakistan’s tax-to-GDP ratio remains among the lowest in comparable economies, reflecting a complex and distortionary tax system, exemptions running into billions, and discretionary decision-making that leaves wide gaps between policy and practice. Weak public financial management undermines fiscal discipline.
One of the most striking observations is the state’s dominance in the economy, where state-owned enterprises (SOEs), public procurement, and government-regulated markets crowd out private sector competitiveness. According to the IMF, federal SOEs alone account for output equal to 12 per cent of GDP and assets equivalent to 48 per cent of GDP, yet many operate under opaque governance arrangements with limited oversight. Public procurement rules, even after recent reforms, continue to allow preferential treatment, especially for state-owned entities. According to the IMF, these institutional arrangements create environments ripe for discretion, influence and corruption.
The report traces corruption not simply to individual acts but to systemic incentives rooted in the structure of governance itself. Weak internal controls, fragmented oversight mechanisms, legacy laws and broad discretionary powers produce inconsistencies between formal rules and actual outcomes. Tax policy and administration offer a prime example: the report highlights how ad-hoc changes, poorly monitored exemptions and autonomy exercised by field formations create opportunities for rent-seeking. Even data systems, like those held by the national tax automation arm, suffer from inadequate oversight.
On the fiscal management side, budget credibility emerges as a critical weakness. Historically, Pakistan has struggled with supplementary grants, in-year budget adjustments and unapproved expenditures that bypass parliamentary approval, thereby weakening allocative discipline. While improvements have been made, the IMF warns that effective control over spending is still limited, especially in development projects. The public investment management system remains fragmented, leading to delays, cost overruns and exposure to corruption risks, as the report’s discussion of large national programmes and procurement highlights.
The diagnostic also highlights weaknesses in market regulation, with Pakistan’s business environment overburdened by overlapping laws, excessive licensing, manual processes and differences in interpretation across regulatory bodies. These conditions fuel regulatory capture, reduce competition and increase compliance costs for investors. The report emphasises that improving market regulation requires institutional independence, transparency and systematic digitisation.
A major portion of the report examines rule of law, focusing on legal and judicial capacity to enforce economic rights. Chronic case backlogs, inefficiencies, outdated laws, multiple tiers of overlapping courts, and questionable appointment processes diminish investor confidence and prolong dispute resolution. The IMF argues that when businesses cannot rely on courts to enforce contracts or protect property rights, economic activity slows, informality grows and corruption thrives. Judicial integrity concerns, flagged by multiple indicators and expert assessments, are treated as a structural barrier to economic reform, hinting at a missing puzzle in the system: an alternate dispute resolution instrument within the ecosystem.
Anti-corruption mechanisms themselves are described as fragmented, politically influenced and insufficiently preventive. Heavy reliance on a single institution, the National Accountability Bureau (NAB), has led to inconsistent enforcement and public distrust. The report points to limited progress in financial investigations, low conviction rates for corruption-linked money laundering, weaknesses in beneficial ownership transparency, and hurdles to mutual legal assistance with other jurisdictions. Despite recent improvements under Pakistan’s FATF action plan, the IMF warns that the AML/CFT regime is still not robust enough to deter high-level corruption.
Even outside the formal assessment, the situation remains alarming. According to TI’s 2024 global survey, the Corruption Perceptions Index 2024 (CPI), Pakistan now ranks 135th out of 180 countries, with a score of 27 out of 100, down from 29 in 2023. Against a global average score of around 43, Pakistan remains well below the international norm.
The CPI’s data reveal different dimensions of corruption: businesses report frequent ‘undocumented extra payments or bribes’ when dealing with imports/exports, public utilities, tax assessments, public contracts and licenses, or when seeking favourable judicial decisions. According to the latest surveys, firms operating in Pakistan often cite corruption and irregular payments as a major obstacle to doing business. A segment of the population still believes corruption worsened in the past 12 months, undermining trust in public service delivery and democratic institutions.
The combination of these official and perception-based metrics is why IMF’s diagnostic calls corruption “macro-critical”. It is not a matter of a few corrupt individuals or scandals, but a pervasive, systemic problem with direct costs: lost revenues, deterred investment, misallocated public funds, and inefficiencies that persist over years.
To address these challenges, the IMF outlines a comprehensive set of 15 priority recommendations, focusing on procurement reforms, regulatory harmonisation, tax simplification, digitisation, judicial performance tracking, oversight of FBR and tax automation arm, strengthening AML/CFT enforcement, publishing asset declarations of senior officials, improving selection processes for heads of oversight bodies, and ensuring independence of auditor general offices. These reforms are designed not just to curb corruption but to overhaul the underlying institutional architecture, promoting transparency, accountability, and efficiency.
Perhaps the most compelling part of the report is its projection that Pakistan could unlock 5–6.5 per cent additional GDP growth within five years by implementing a package of governance reforms aligned with the diagnostic’s findings. That estimate is based on cross-country data from emerging markets, clearly demonstrating that governance reforms are not merely administrative improvements, but economic accelerators.
Ultimately, the IMF frames this diagnostic not as an end, but as the beginning of a longer governance transformation. The success of this effort, it emphasises, will depend on political will, continuity across governments, empowered oversight bodies, transparent reporting and meaningful involvement of civil society and private sector stakeholders. Most importantly, it requires a shift from discretionary governance to rule-based governance, backed by transparency, performance measurement, and accountability.
As Pakistan stands at this crossroads, the IMF report paints a detailed picture of the challenges, but also provides a roadmap towards a more transparent, competitive and sustainable governance model. Whether Pakistan seizes this opportunity will shape not only economic performance but the broader social contract between the state and its citizens.
The writer is a public policy expert and leads the Country Partner Institute of the World Economic Forum in Pakistan. He tweets/posts @amirjahangir and can be reached at: [email protected]
