Behind the headlines of relief lies a paradox: the IMF itself has just released a 186-page “Governance and Corruption Diagnostic Assessment” that paints a grim portrait of Pakistan’s institutional decay, writes Dr Sakariya Kareem
The International Monetary Fund’s Executive Board has approved another tranche of financial support for Pakistan, $1.29 billion, of which more than $1 billion comes from the Extended Fund Facility and the remainder under the Rapid Financing Instrument. With this latest inflow, Pakistan has now received approximately $3.3 billion in the ongoing IMF programme. The Fund praised Islamabad’s efforts to stabilise the economy, citing improvements in fiscal discipline, inflation control, and energy sector reforms. Officials in Pakistan believe the support will ease pressure on the rupee and restore market confidence.
Yet, behind the headlines of relief lies a paradox: the IMF itself has just released a 186-page “Governance and Corruption Diagnostic Assessment” that paints a grim portrait of Pakistan’s institutional decay.
The report is an institutional autopsy. Corruption, the IMF concludes, is “macro-critical”, embedded in the very structure of the state and economy. It determines who prospers, why growth remains anaemic, and why Pakistan returns to the Fund every few years with its hand out. The timing is striking: the diagnostic was published just before the Board meeting that approved the latest disbursement. In effect, the IMF has acknowledged that Pakistan’s governance vulnerabilities are systemic, yet continues to lend without dismantling the ecosystem of capture that perpetuates the crisis.
The evidence is damning. In fiscal year 2024–25 alone, actual expenditure overshot the approved budget by 9.4 trillion rupees, five times the previous year’s overrun. These deviations were not debated in Parliament beforehand; they were regularised after the fact through supplementary grants, presented as faits accomplis. This pattern is not new. Ministries spend knowing they will be bailed out, the Finance Ministry accommodates them to avoid political backlash, and Parliament rubber-stamps overruns that can exceed 10 percent of the original budget.
The Public Sector Development Programme (PSDP), meant to channel resources into growth-enhancing infrastructure, has become a graveyard of unfinished projects. The IMF notes a “large overhang of ongoing projects” with a combined estimated cost of 10.7 trillion rupees. Annual allocations hover around 1.1 trillion rupees, meaning even without new projects, it would take nearly a decade to clear the backlog. Chronic delays, cost escalations, and substandard execution are the predictable result of a system without transparent criteria for project selection or prioritisation.
Even Pakistan’s celebrated exit from the FATF grey list in 2024 is tempered by the diagnostic. While improvements were made in financial monitoring and reporting, the IMF found troubling gaps. Suspicious transaction reports are filed but rarely lead to serious corruption-related investigations. Beneficial ownership data exists but remains difficult to access and verify. Politically exposed persons are identified, but scrutiny of their transactions is uneven. The gap between laws on paper and practice on the ground is not mere implementation failure, it is the operational logic of a state organised around patronage, rent extraction, and selective enforcement.
Why then does the IMF continue to lend? The answer lies in the Fund’s dual role: stabiliser of economies in crisis and enforcer of structural adjustment. Pakistan is emerging from one of its most severe macroeconomic crises in decades, and immediate stabilisation is necessary to prevent collapse. But stabilisation is not transformation. Every tranche buys time, raises reserves, and temporarily calms markets. Yet without structural reform, every stabilisation is temporary, every reform partial, and every crisis a prelude to the next.
This is not unique to Pakistan. Across the developing world, IMF and World Bank programmes have often hindered long-term growth. Structural Adjustment Programmes (SAPs), built on liberalisation of prices and trade, and privatisation of public assets, force countries to remove restrictions on capital and trade flows. While designed to integrate economies into global markets, these policies frequently result in slow growth, higher poverty, lower incomes, increased debt burdens, and deteriorating social services such as healthcare, water, and education. Evidence from Egypt, among others, shows that IMF-backed reforms disproportionately hurt the poor and middle classes, exacerbating inequality. Scholars such as Przeworski, Vreeland, Barro, and Lee have argued that IMF and World Bank interventions widen the gap between rich and poor, while Gilbert and Unger note their contribution to global economic instability.
In Pakistan, decades of aid and loans have produced little to show in return. A substantial amount of external support has been poured into the country, yet corruption and mismanagement have ensured that much of it is wasted or diverted. Aid becomes part of the problem, not the solution, when it entrenches dependency and fails to address governance failures. The IMF’s own diagnostic confirms that Pakistan’s system is working “exactly as designed”, a state organised around capture rather than service delivery.
Anticorruption advocates argue that the IMF must live up to its promises by integrating anticorruption measures into its lending procedures. When corruption is deemed “macro-critical,” as in Pakistan, the Fund should condition disbursements on verifiable governance reforms. Without such accountability, IMF support risks perpetuating the very vulnerabilities it diagnoses.
Ultimately, the IMF cannot clean Pakistan’s house. These are tasks only Pakistan’s institutions can perform. If corruption continues to eat away at public resources, the gains from IMF support will not last. The money will come, reserves will rise, but public confidence and economic strength will remain weak. Each loan becomes a temporary reprieve, not a path to sustainable growth.
IMF conditionality requires countries to increase fiscal transparency, which should have increased the likelihood that corrupt leaders will be called out on their misdealing. But that doesn’t appear to be happening in Pakistan which receives billions in IMF support even as the Fund itself warns that corruption poses existential risks to its economic future. Unless governance reforms move from paper to practice, IMF lending will remain a revolving door, stabilising crises without ever resolving them. For Pakistan, the challenge is not merely to survive the present crisis but to break free from the cycle of dependency. Without dismantling the ecosystem of capture, every disbursement is another step deeper into the trap.
