EDITORIAL: The Finance Division released the International Monetary Fund (IMF) Technical Assistance (TA) report late night Wednesday titled “Pakistan Governance and Corruption Diagnostic Assessment (GCDA), a structural benchmark for release in August 2025 under the ongoing Extended Fund Facility (EFF) programme.
The report is damning, which would surprise no one with the Fund observing that “while corruption vulnerabilities are present at all levels of government the most economically damaging manifestations involve privileged entities that exert influence over key economic sectors, including those owned by or affiliated with the state.”
The report limited its assessment to the federal level, though as with most severely limited TA objectives the need to protect the staff from subsequent criticism prompted the observation that as comprehensive governance programme would need to address governance concerns that exist among and between provinces.
The identified governance weaknesses and corruption vulnerabilities with macroeconomic consequences were in the following areas: (i) fiscal governance (public financial management, public procurement, management of state assets and tax administration and policy) with neither internal nor external auditors with sufficient authority to fulfil their mandates, including weak budget credibility; (ii) market regulation with regulatory bodies favouring select firms or entrenched cartels and thereby raising concerns about impartiality and regulatory capture; (iii) financial sector oversight; (iv) anti-money laundering; and (v) rule of law with special reference to enforcement of contracts, protection of property rights and judicial integrity. The report maintained that the “judicial sector that is organisationally 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.”
A few observations are in order. Firstly, fiscal governance needs to be improved through structural changes where the reliance on revenue from indirect taxes whose incidence is greater on the poor than the rich must be slowly replaced with a rising reliance on direct taxes based on the ability-to-pay principle.
The Federal Board of Revenue (FBR) to this day, a little more than a year after the approval of the EFF by the IMF Board, continues to rely on indirect taxes, with frequent demands for bypassing procurement rules for one reason or another. Second, contracts signed by the government need to be vetted by appropriately qualified lawyers to minimise the penalties imposed in international arbitration tribunals for violating the contracts.
Third, judicial integrity must never be compromised as it leads to net outflows of foreign investment as is the case today reflected by the (negative) USD 64.5 million outflow July-September 2025 as noted by the Finance Division in its October Update and Outlook.
And finally, the report refers to 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 — no doubt laying the groundwork for justifying the ongoing technical assistance to deal with “major shortcomings” in the government finance statistics.
Economists have long been lamenting the prevalence of elite capture — of budgeted expenditure (including the annual salary raise for 7 percent of the total work force employed by the state every year at the taxpayers’ expense, a rising pension bill each year for the retired state employees, and subsidiaries) and budgeted revenue as 75 to 80 percent of all taxes are indirect, which accounts for 42 percent poverty levels in this country.
The wealthy private sector also represents elite capture by forming powerful associations/organisations and registering them with the Securities and Exchange Commission of Pakistan that allows them to collectively bargain with the government in spite of the fact that the price of their products, like in most other countries, should be determined by supply and demand as the number of buyers and sellers is simply too large to influence price; they have successfully formed powerful organisations — examples being All Pakistan Textile Mills Association, All Pakistan Cement Manufacturing Association — which has enabled them to ensure the passage of very favourable fiscal and monetary policies.
The sugar mill owners’ association has, as per government reports, successfully convinced administration after administration to allow exports, which has created domestic shortages leading to a rise in domestic prices and, in the past, sought export subsidies as well.
It is relevant to note that each subsequent administration has accused its predecessors of corruption and poor governance and yet their fallout continues ranging from crippling the economy by diverting funds to current expenditure, creating an environment not conducive to investment, fuelling poverty and eroding public trust in the government. This newspaper has consistently advocated for a reduction in current budgeted expenditure that would require sacrifice from the elite — both in government and those without, as well as a seismic shift in the current tax structure.
Copyright Business Recorder, 2025
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