IMF warns corruption, weak institutions still hinder Pakistan’s economic growth

The International Monetary Fund has raised concerns over persistent corruption and weak governance in Pakistan, highlighting their continued impact on the country’s economic development despite signs of stabilisation under the $7 billion Extended Fund Facility programme. The warning comes in the IMF’s Governance and Corruption Diagnostic Assessment, which will play a key role in unlocking a $1.2 billion disbursement expected next month.

Stabilisation achieved, but structural challenges remain

The assessment, requested by the Pakistani government and launched in January 2025, involved an interdepartmental IMF team working alongside World Bank experts. Over eight months and two field missions, the team analysed federal institutions to identify corruption risks, governance weaknesses, and reforms that could improve accountability, transparency, and public sector efficiency.

Focusing on five critical areas—fiscal governance, market regulation, financial oversight, anti-money laundering and counter-terrorism financing, and the rule of law—the report highlights where Pakistan remains vulnerable despite progress under the EFF programme. While stabilisation efforts have delivered some results, the IMF cautioned that structural weaknesses continue to weigh on economic growth.

According to the report, the government has made notable strides in stabilising the economy. Pakistan achieved a primary fiscal surplus of 2.0 percent of GDP in the first half of the 2024-25 fiscal year, bringing it close to the 2.1 percent target by year-end. Inflation hit a historic low of 0.3 percent in April, while foreign exchange reserves improved to $10.3 billion by the end of April 2025, up from $9.4 billion in August 2024. The IMF projects reserves will rise to $13.9 billion by June and continue to strengthen over the medium term.

Corruption remains a key barrier

Despite these gains, the report underscores long-standing challenges. Living standards have lagged behind regional peers, and economic development is constrained by state-led distortions, underinvestment in human and physical capital, fiscal weaknesses, and recurring macroeconomic pressures.

Corruption, the IMF said, remains a persistent barrier to progress. The report notes that citizens frequently face unofficial payments to access basic services, while public funds lost to corruption could otherwise support development. The assessment highlights the influence of “privileged entities” and political elites that capture public benefits and shape policies to suit private interests. For example, the decision under the 2019 PTI government to permit sugar exports illustrates how elite influence can affect national economic policy.

The report also identifies systemic governance weaknesses across key state functions. Public financial management, procurement, and oversight of state-owned enterprises were flagged as areas prone to mismanagement. The tax system is described as complex and poorly administered, increasing corruption risks and limiting revenue collection. Market regulation suffers from overlapping authorities and opaque processes, while judicial delays and structural inefficiencies weaken enforcement of contracts and property rights.

Reform agenda offers growth potential

To address these issues, the IMF recommends a broad reform agenda. Immediate measures include ending special privileges for major public institutions, introducing a fully digital government procurement system within 12 months, and strengthening parliamentary oversight of financial powers. The report calls for reforms in anti-corruption institutions, more consistent enforcement of laws, and effective use of AML/CFT tools to combat money laundering linked to corruption.

The IMF notes that Pakistan has previously demonstrated the ability to implement complex reforms, citing improvements in central bank independence, digital ID and biometric systems, and regulatory streamlining. The GCDA stresses that successful implementation of governance and anti-corruption reforms could boost GDP by 5 to 6.5 percent over the next five years, paving the way for more sustainable, private sector-led growth.

The report, which reflects data collected before April 2025, is expected to be formally published by the end of August as a structural benchmark under the EFF. The IMF emphasises that these reforms are critical not only for unlocking financial support but also for building long-term economic resilience and public trust in Pakistan’s institutions.