IMF exposes Pakistan’s deep governance failures as the State Bank warns the country’s outdated growth model cannot support 250 million people, urging urgent reforms and political resolve….reports Asian Lite News
The International Monetary Fund (IMF) has issued one of its starkest warnings yet on Pakistan’s governance and institutional integrity, concluding that entrenched elite influence, political patronage networks, and pervasive corruption continue to destabilise the country’s frail economy. The IMF’s Governance and Corruption Diagnostic Assessment (GCDA), reported by Dawn, shifts the Fund’s focus from traditional fiscal prescriptions to a deeper examination of Pakistan’s systemic weaknesses—revealing a sprawling matrix of power that bends policy and public resources towards privileged interest groups rather than the wider population.
The GCDA identifies serious governance failures across public procurement, fiscal oversight, taxation, regulatory transparency, state-owned enterprises (SOEs), and the rule of law. According to the report, Pakistan’s policymaking—particularly in energy, real estate, agriculture, and sugar sectors—remains shaped by “elite capture,” where powerful actors influence decisions to protect their own economic interests. This pattern, the IMF warns, distorts markets, deepens inequality, and limits the country’s ability to undertake genuine reforms.
The Fund estimates that Pakistan’s GDP could grow by up to 6.5 per cent in five years if meaningful governance reforms were implemented. Yet, inefficiency, opaque decision-making, and political interference continue to impose heavy economic and social costs. Ordinary Pakistanis bear the brunt—facing rising inflation, prolonged energy crises, weakening public services, and shrinking opportunities.
Fiscal mismanagement and tax failures
Fiscal governance, long a weak spot for Pakistan, remains riddled with loopholes. The IMF highlights large gaps between allocated budgets and actual spending, widespread off-budget reallocation, and fragile internal audit systems. Ministries frequently lack transparent accounting trails, allowing funds to be redirected without scrutiny.
Tax administration is similarly compromised. While the IMF criticises widespread evasion and selective enforcement, its own recommended tax hikes have—ironically—pushed many businesses into the informal sector, reducing compliance while increasing pressure on the formal economy. The IMF notes that the narrow tax base continues to protect influential groups, placing disproportionate burden on salaried citizens and compliant businesses.
State-owned enterprises also continue to bleed resources. The energy sector—long plagued by circular debt, political meddling, and lack of oversight—remains one of Pakistan’s most financially distressed public domains. The IMF’s proposed reforms include digitalising procurement, simplifying taxes, strengthening parliamentary oversight, and empowering anti-corruption institutions, but it concludes that the greatest barrier remains political will.
Despite repeated reform pledges across successive governments, entrenched interests have consistently derailed modernisation efforts, sustaining a system that rewards inefficiency and discourages transparency.
‘Growth model cannot support 250m people’
The grim assessment from the IMF comes amid an equally sobering warning from the Governor of the State Bank of Pakistan (SBP), Jameel Ahmad, who said the country’s present economic growth model is “no longer viable” for a population of 250 million.
Speaking at the Pakistan Business Council’s Dialogue on the Economy, Ahmad said Pakistan’s growth trajectory had been deteriorating for decades. Growth has averaged 3.9 per cent over the last 30 years, 3.5 per cent over the last two decades, and just 3.4 per cent in the past five years—signalling chronic stagnation at a time when the population and economic pressures continue to grow.
“Our business cycles are shortening, and as such, our current growth model simply cannot sustain a country of over 250 million people,” he said.
His remarks coincided with criticism from Pakistan’s Planning Minister, Ahsan Iqbal, who accused the IMF of fuelling the highest unemployment rate in 21 years—now at 7.1 per cent. Meanwhile, the World Bank estimates 44.7 per cent of Pakistanis live below the poverty line.
Ahmad described Pakistan as being trapped in an extended stabilisation phase, where high taxes, soaring energy prices, and unchecked spending have battered both citizens and private businesses. Calling the moment an “inflection point,” he urged policymakers to pivot towards long-term, inclusive growth.
Need for structural reform
The SBP governor stressed that Pakistan must modernise its industries, join global value chains, and abandon short-term, profit-driven approaches. Without structural reform, he warned, the country risks becoming “globally irrelevant”.
Ahmad highlighted the central bank’s efforts to break the cycle of boom-and-bust by adopting a more forward-looking monetary framework. Inflation is expected to remain within the medium-term target of 5–7 per cent, he said. Pakistan has also delivered three consecutive years of fiscal consolidation and accumulated foreign reserves through market purchases rather than external borrowing—expanding reserves from USD 2.9 billion to USD 14.5 billion since 2022.
Former SBP Governor Ishrat Husain added that Pakistan’s total economy is likely closer to USD 700 billion, once informal and illicit economic activities are included, far larger than the officially recorded USD 350 billion.
