IMF: Pakistan loses up to 6.5% of GDP to corruption as elite capture strangles growth

Rs5.3 trillion recovered in 2 years, says report exposing scale of Pakistan's corruption crisis

ISLAMABAD:

Corruption recoveries totaling Rs5.3 trillion in just two years represent only a fraction of the true cost to Pakistan's economy, the International Monetary Fund said Wednesday in a scorching assessment that found corruption "persistent and corrosive" at every level of government.

After holding back for almost three months, the Ministry of Finance released the Governance and Corruption Diagnostics Report to meet the IMF’s condition to release it before the meeting of the executive board for the approval of the $1.2 billion worth two loan tranches.

The Rs5.3 trillion figure added up from January 2023 to December 2024.

In the 186-page report, the global lender said that there was no reliable measure to quantify scale of corruption in Pakistan but said that “those costs can be gleaned from the recovery of corruption-related assets”. The IMF said the NAB recoveries in just two years are just one of the ways to scale the depth of corruption. The money obtained through asset recoveries by NAB reflects only one element in total costs of corruption to the economy, it added.

The IMF analysis projected that Pakistan could generate between a 5% to 6.5% increase in GDP by pushing through a package of governance reforms over the course of five years.

Pakistan has gone to the IMF 24 times since 1958, making it one of the Fund's most frequent borrowers. Nearly every government - military or civilian - has had to seek IMF assistance, reflecting Pakistan's chronic balance of payments crises.

The current deal under Shehbaz Sharif is Pakistan's 25th IMF program.

“Shortly after independence, Mohammad Ali Jinnah, Pakistan’s founding father, denounced corruption in 1947 as a poison that needed to be eradicated,” said the IMF. “More than 70 years later, corruption continues to hinder Pakistan’s macroeconomic and social development by diverting public funds, distorting markets, impeding fair competition, eroding public trust, and constraining domestic and foreign investment.”

It added, “Corruption is a persistent and corrosive feature of Pakistan’s governance,” in a remark that spares none of the successive governments and dictators that have remained in power. One example cited is of the PTI government’s decision in 2019 to allow sugar exports as one of the examples of how corrupt elites have captured policies to their benefits.

The IMF report that will also be read in other world capitals, stated that Pakistanis are regularly required to pay officials for access to services. At a higher level, official policies and practices have been shaped by economic and political elites to make use of public authority to enrich themselves at the cost of greater societal well-being and economic growth.

Here are the Pakistani leaders who have signed IMF deals:

Military Rulers:

• Gen. Ayub Khan (1960s) - Early IMF engagement
• Gen. Zia-ul-Haq (1980s) - Multiple programs
• Gen. Pervez Musharraf (1999-2008) - Major program in 2000-01, another in 2008

Civilian Prime Ministers:

• Nawaz Sharif (Multiple terms: 1990-93, 1997-99, 2013-17) - Signed deals in 1997 and 2013 (the 2013 program was a major $6.6 billion EFF)
• Benazir Bhutto (1988-90, 1993-96) - Programs in her tenures
• Shaukat Aziz (2004-07) - Under Musharraf's presidency
• Yousuf Raza Gilani/Asif Ali Zardari (PPP government 2008-13) - 2008 SBA
• Imran Khan (2018-22) - Signed $6 billion EFF in 2019
• Shehbaz Sharif (2022-present) - Signed $3 billion SBA in 2023, current $7 billion EFF in 2024

The capture of judicial institutions and the lack of accountability for corrupt practices fosters corruption and the outflow of capital tied to the proceeds of corruption that might be more productively used in Pakistan, it added.

The IMF said that that indicators reflect weak control of corruption over time with negative consequences for public spending effectiveness, revenue collection, and trust in the legal system.

“The most economically damaging manifestations involve privileged entities that exert influence over key economic sectors, including those owned by or affiliated with the state.”

These dynamics are compounded by perceptions that the anti-corruption approach has lacked consistency and impartiality, contributing to diminished public confidence in enforcement institutions.

The IMF defines corruption as the abuse of authority for private gain. Corruption can be an individual act such as requesting or accepting a bribe, or it can happen through a long-standing network of public and private actors who work together to capture contracts, markets, or sometime entire governments.

The IMF said that Pakistan’s corruption risks are generated by weaknesses in budgeting and reporting of fiscal information, and management of public financial and non-financial resources, particularly in capital spending, public procurement, and the management and oversight of state-owned enterprises in an overly complex and opaque tax system.

The IMF said that Pakistan’s judicial sector is organizationally complex, is not able to reliably enforce contracts or protect property rights due to problems with efficiency, antiquated laws, and the integrity of judges and judicial personnel.

“Corruption risks are exacerbated by fragmentation among accountability institutions and limitations in their operational independence,” said the Fund.

Rule of law
The IMF said that governance weaknesses in the judicial sector constrain the ability of parties to rely on the effective enforcement of their economic rights and lead to exposure to corruption risks.

Existing mechanisms for overseeing the efficiency and ethics of judicial officers need to be strengthened to support improved performance and increased public trust.

The IMF wrote the report after fielding two missions to Pakistan that focused on examining the nature and severity of corruption and identifying the governance weaknesses and corruption vulnerabilities.

It said that its exercise was confined to corruption and governance issues at the federal level while important, broader political and institutional dynamics, including provincial governance and the role of the military, were largely outside the scope of this exercise.

“The recently established Special Investment Facilitation Council, which has been vested with substantial authority to facilitate foreign investments, operates with untested transparency and accountability provisions,” the IMF report said.

The sugar mills
While citing the 2019 infamous sugar export case of former Prime Minister Imran Khan’s regime, the IMF said that the sugar sector provides a case study of how the intertwined relationship between economic elites and state regulators combine to capture public benefits at deep costs to the overall public.

“Sugar mill owners, many of whom hold government positions, have ensured highly ‘recommended’ prices for sugarcane and protective tariffs, keeping their operations profitable at the expense of competitiveness and they have also influenced export and pricing policies to their advantage.

In 2018–19, a government decision allowed significant sugar exports, even subsidizing them, which created domestic shortages and price spikes for consumers," said the Fund.

The IMF said that a high-profile investigation, led by the FIA, found that leading sugar mill owners colluded to create artificial shortages and manipulate prices despite ample warehouse stocks. It uncovered fraudulent practices, including speculative hoarding and the laundering of illicit profits through fake accounts. The inquiry’s report named political heavyweights as culprits and confirmed that an export push (approved by government officials tied to the industry) had caused domestic prices to soar.58 Despite damning revelations, accountability has been limited, it added.

Judiciary
The IMF said that corruption is viewed as an important factor influencing judicial performance and undermining the rule of law in Pakistan

While citing various surveys, the IMF said that the National Corruption Survey consistently found that respondents viewed the judiciary as one of the most corrupt sectors, together with the police and public procurement.

“The judiciary is consistently identified in public surveys as one of the most corrupt state functions, indicating the lack of trust in current judicial practices.”

The report underlined that Pakistan's judicial system faces considerable obstacles in practice with respect to judicial independence, against the fragmented organizational backdrop.

26th constitutional amendment
The recent changes in the appointment process for Supreme Court judges have prompted discussion and a constitutional petition regarding potential implications for judicial independence and rule of law.

“The 26th Constitutional Amendment changed the appointment process for the Chief Justice (nomination by Special Parliamentary Committee with representation from women and minorities) and expanded the number of members in the Judicial Commission of Pakistan,” said the Fund.

The report further stated that while the amendments aim to broaden participation and enhance inclusivity, several stakeholders have expressed concerns that, absent adequate safeguards, the reforms could be perceived as heightening potential risks to judicial independence.

The IMF said that to reinforce confidence in the integrity of the appointment process, the authorities could consider codifying clear and objective selection criteria for judges; adopting transparent, evidence-based evaluation procedures; and integrating integrity and ethics screening as a systematic component of a merit-based process, consistent with international good practice.