PR Explainer

CWA # 1967
PR Explainer
Pakistan and IMF’s Governance and Corruption Diagnostic Assessment
Risks, Reforms and Trajectories
CWA #1970

R Preetha
30 November 2025

Photo Source: Reuters

What is the IMF’s Governance and Corruption Diagnostic Assessment?
On 20 November, the International Monetary Fund (IMF) released its long-awaited Governance and Corruption Diagnostic Assessment (GCDA) report. The GCDA is a detailed technical evaluation conducted at the request of Pakistan’s government in January 2025. It examines federal-level governance weaknesses and corruption vulnerabilities that have significant macroeconomic consequences. The assessment covers five core state functions: fiscal governance, financial sector oversight, market regulation, anti-money laundering and counter-financing of terrorism (AML/CFT), and the rule of law. It also evaluates the effectiveness of anti-corruption institutions. The GCDA, which was designed to suggest priority reforms, serves as a structural benchmark under Pakistan’s USD 7 billion Extended Fund Facility (EFF), with its publication being a precondition for the IMF board’s approval for loan disbursements. 

What are the key findings of the report, and what reforms has the IMF proposed?
First, the assessment finds corruption in Pakistan is systemic rather than episodic. The report points to the following as the factors driving corruption in the country: institutional weaknesses, opaque regulations, fragmented oversight, and inadequate accountability. These elements bring substantial economic costs to Pakistan as it distort markets, divert public resources, hinder fair competition, and investment.  

Second, the report identifies elite capture as a central mechanism through which corruption is sustained. It notes that influential political and economic networks allow preferential policies, tax exemptions (keeping the tax base narrow), subsidies, and discretionary powers that favour connected entities. This in turn leads to misguided decision-making, revenue losses, and unequal opportunities. High-risk sectors such as financial oversight and AML/CFT frameworks, remain vulnerable due to uneven identification of politically exposed persons and reliance on informal channels.  

Third, gaps in fiscal governance reinforce the above dynamics. The report notes that fiscal Governance in Pakistan suffers due to weak budget credibility, excessive supplementary grants bypassing parliamentary scrutiny, opaque procurement favouring state-owned enterprises, insufficient internal controls, and limited follow-up on audit observations. Further, the rule of law is weakened by judicial delays, outdated laws (which impact contract enforcement), political influence over anti-corruption bodies such as the National Accountability Bureau, and low enforcement rates, leading to impunity.  

Fourth, the IMF outlines a 15-point priority reform agenda to address these challenges, with initial actions recommended within three to six months. The action points focus on improving transparency, reducing discretion, and strengthening accountability across state functions.  The report estimates that targeted governance reforms could increase Pakistan’s GDP by 5 to 6.5 per cent over five years.  

In fiscal governance, proposals include stricter limits on discretionary financial powers, mandatory e-procurement, elimination of preferential treatment for state-owned enterprises, and real-time parliamentary tracking of audits, alongside full independence for the Auditor General of Pakistan.  Further, the IMF calls for simplifying the tax system, reducing exemptions, and increasing transparency in order to limit rent seeking.

For investment facilitation and the rule of law, the reforms call for annual public reporting by the Special Investment Facilitation Council on deals and concessions, a central registry for state land with rule-based transfers, standardised judicial appointments and performance assessments, merit-based leadership for anti-corruption bodies, public asset declarations for senior officials starting in 2026 with risk-based verification, and stronger AML/CFT measures. These steps aim to improve access to information and empower oversight by state and civil society actors. These measures, if implemented effectively, are expected to bring in inclusive growth, rebuild trust, and create a level playing field.

Why has Pakistan struggled to address the concerns repeatedly flagged by the IMF?
First, elite capture in Pakistan is deep-seated and remains a primary barrier. Influential networks continue to influence policies and regulations to keep in privileges, exemptions, and discretionary benefits. This occurs often at the expense of broader economic equity.  

Second, longstanding institutional weaknesses such as complex and opaque rules, fragmented oversight, inadequate controls, and poor coordination among anti-corruption entities have allowed vulnerabilities to continue despite previous identifications in IMF programs and assessments.  

Third, political interference in independent bodies, judicial delays, executive influence over audits, and inconsistent enforcement have created an environment of impunity. This challenges long term accountability efforts across governments. Historical patterns of incomplete implementation, resistance from vested interests, and limited public participation have stalled progress, perpetuating macroeconomic costs.

What is the likely trajectory moving forward?
First, Pakistan has begun addressing short-term commitments, including publishing the diagnostic report in November 2025, a key step that facilitated IMF board approval of disbursements worth USD 1.2 billion in December 2025. It has also initiated plans for asset declaration disclosures and SIFC transparency reporting.  

Second, medium- to longer-term success will depend on advancing institutional independence through merit-based appointments, e-procurement mandates, tax reforms, judicial modernisation, and enhanced anti-corruption capacities, alongside improved parliamentary and civil society oversight.  

Third, while effective implementation could deliver growth and stability, entrenched elite interests and past resistance pose risks. Sustained political commitment beyond short-term IMF compliance is essential to overcome these challenges. Failure to do so risks prolonging dependence on external support, further IMF conditionalities and impact long-term economic stability in Pakistan.

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