OPINION: IMF’s report on governance and corruption: limited and naïve—I

The government recently released the report ‘Governance and Corruption Diagnostic [GCD] Assessment’ that it requested from International Monetary Fund (IMF) under ‘technical assistance’ in January, and which as per the structural benchmark of the ongoing Extended Fund Facility (EFF) programme it was required to make public by end-August.

Before getting into the details of the GCD report, the first thing to reflect upon is that the GCD report is ‘…based on a mutual appreciation of the macro-economic consequences of corruption and governance weaknesses in Pakistan.’ The problem here is that consequences alone will not allow for reaching proper diagnosis, or recommendations, and it is being assumed that causes of corruption were also investigated, although not explicitly indicated in the report.

Moreover, the research question being taken up as ‘…to identify governance challenges associated with increased exposure to corruption and define recommendations to improve performance, accountability, and integrity’ is wrongly unidirectional, since corruption and governance are correlated and, therefore, the direction of causation is two-way, that is lack of appropriate level of governance impacts corruption, and significant- level of corrupt practices, or corruption level impacts governance in a negative manner. Also, here the situation is like a chicken-and-egg situation because it is not clear whether it was firstly a rise in corruption level that resulted in poor governance, or the other way round.

The report points out that ‘GCD occurs within the context of a 37-month US$7 billion IMF Extended Fund Facility (EFF)’ programme, and that the programme has ‘…already delivered significant progress in stabilizing the economy and rebuilding confidence…’ This writer takes strong exception to the claim that the programme has had such a pronounced positive impact, and, on the contrary, the programme is based on strong neoliberal- and austerity-based policy framework, which as per deep research literature, especially in the aftermath of the Global Financial Crisis (GFC) 2007-08, indicates that such framework does not deliver any sustainable level of macroeconomic stabilization or builds resilience even after a lot of economic growth sacrifice.

As a consequences of these two policy inclinations, that is over-board aggregate demand squeeze policies, and a diminishing role of government – limited to mainly a ‘facilitator’ of private sector and only a ‘fixer’ of market failures, rather than government working actively with private sector, and market-shaping in a symbiotic, mission-oriented manner to enhance productive- and allocative efficiencies to put in place deep pre- and post-distribution policies for meaningfully inclusive, and well-distributed growth consequences –results in lack of investments into demos that negatively impacts their political voice and before that hurts needed investments to enhance their educational, and economic empowerment, reducing, in turn, their ability and capacity to push for reforms that check perpetuation of elite capture.

Moreover, Neoliberalism, and austerity – both monetary, that is over-board use of policy rate to control inflation or raise foreign portfolio investment and fiscal, mainly in the shape of cutting expenditure, mostly development expenditure to reach primary surplus, which has to be deep in the wake of unjustifiably high interest rate payments under high level of monetary austerity, and lack of commitment to cut non-developmental expenditures of government working under poor level of political voice and a strong influence of vested, moneyed interest on public policy – have been strong philosophical underpinnings of policies, both within and outside of the IMF programme during the last four decades or so, coinciding with the rise of Neoliberalism globally and the strong comeback of austerity policies at that time at the back of apparently significant presence of ‘Chicago boys’-styled policymakers predominantly present in policy circles in the country and at the IMF.

Renowned philosopher and father of modern linguistics Noam Chomsky in his book ‘Profit over people: Neoliberalism and global order’ published in 1999 pointed out about Neoliberalism as ‘The term “neoliberalism” suggests a system of principles that is both new and based on classical liberal ideas… The doctrinal system is also known as the “Washington Consensus”, which suggests something about global order. A closer look shows that the suggestion about global order is fairly accurate, but not the rest. The doctrines are not new, and the basic assumptions are far from those that have animated the liberal tradition since the Enlightenment.’ Moreover, in his co-authored (2024 published) book ‘Invisible doctrine: the secret history of Neoliberalism’, renowned thinker, George Mobiot, indicated in this

regard: ‘Neoliberalism – the explosive accelerant of capitalism – has a history. A history of which few people are aware. The term “neoliberal” was coined at a conference in Paris in 1938.’ Moreover, the same book pointed out: ‘Neoliberalism is often described as “capitalism on steroids”. It treats some of capitalism’s most oppressive and destructive practices as a kind of holy writ that must be protected from challenge, and tears down the means by which they might be restrained.’

Austerity serves as among most significant ways of providing that restraint by under-investing in demos, and together with Neoliberalism keeps a diminishing role of public sector and overall institutions and allows, in turn, perpetuation of elite capture by least regulation of corrupt practices and even incentivizes it by keeping demos overall poorly empowered, and as tools for elites to assist in their corrupt practices in return for allowing these connivers a share in this extraction.

It is exceedingly naïve, to say the least, of GCD policy prescription, and government policies in general to expect that even a very mild change at the margins that the report is suggesting will be brought about by the very elites that have perpetuated these wrongs, while at the same time weakening the check of demos by suggesting neoliberal, and austerity policies that weaken political voice.

Having said that, some ray of hope comes from an otherwise fast-unfolding climate change crisis, whereby such policies cannot enable reaching resilience to effectively tackle this existential threat, which puts this extractive design under some pressure, as the threat is also very dangerous for these elites. So, given the weak situation of demos, most probably any meaningful pushback is likely to come from existential threats to this capital order.

So, while the GCD report produced by the technical mission of the IMF highlights a number of ways in which corruption negatively impacts governance, macroeconomic, and growth consequences – where IMF ‘…projects that Pakistan could generate between 5 to 6.5 percent increase in GDP by implementing a package of governance reforms over the course of 5 years’ – two big missing links, and which is a significant ‘prior step’ to implementing governance reform, and how it is approached and formulated, is doing away with neoliberal, and austerity policy framework. This is because it is these very two tools that allow perpetuation of ‘elite capture’ or politico-economic extractive institutional design. It is only that structural policies with regard to governance- and incentive structures needed to dismantle corruption in any significant way requires formulation of these under non-neoliberal and non-austerity policy mindset on the lines of strong social democratic policies of the Scandinavian countries along with anti-price shock therapy policies (the kinds the IMF, and Chicago boys-styled policymakers suggest under the neoliberal, and austerity assault), like the ‘dual-track’ pricing mechanism or the ‘mixed-ownership enterprise’ (MOE) model policies as successful policies of state capitalism practiced by China.

Moreover, given the deep level of elite capture, it is only under an empowered political voice that such reforms can be pushed through that meaningfully shake this extractive institutional design. Such empowered political voice requires meaningfully deep public investments, proper price discovery both on the side of costing of goods and the incomes of workers who help produce them at the back of well-regulated and co-created markets by public, and private sector coming together. However, the GCD report and policy in Pakistan, in general, do not allow for such change of approach.

Noted economist, Clara E. Mattei, in her internationally renowned (2022) published book ‘The capital order: how economists invented austerity and paved the way to Fascism’ pointed out that austerity project is implemented by design by elites – both in the realm of liberal democracies, and those working in the varying shades of Fascism, and with their influence have shaped global financial architecture in this direction to preserve ‘capital order’ or an institutional design that allows for perpetuation of wealth and power in the hands of the few; in other words, the elite capture. Moreover, by under-investing in public, the strength to perpetuate this capital order is enhanced and, therefore, austerity leads to enhancing fascist tendencies.

This injustice, in fact, is among the main causes of corrupt practices because it delivers an institutional design, a capital order that weakens the democratic check on policies that incentivize – loose checks on profiteering, and lack of meaningful price controls, or policies that weakly boost productive and allocative efficiencies under strong market fundamentalism, loose capital controls, heavy privatization – ease of doing corruption, and perpetuating wealth and power concentration in a tiny elite, who then create lopsided incentives that both reward their connivers, and increase the depth and scope of these policies to further deepen this elite capture.

She points out in the book: ‘Call it the austerity effect: the inevitable public suffering that ensues when nations and states cut public benefits in the name of economic solvency and private industry. While austerity policies may not be identified by name, they underscore the most common tropes of contemporary politics: budget cuts (especially in welfare expenditures such as public education, health care, housing, and unemployment benefits), regressive taxation, deflation, privatization, wage repression, and employment deregulation. Taken together, this suite of policies entrenches existing wealth and the primacy of the private sector, both of which tend to be held up as economic keys that will guide nations to better days. …Where austerity has proven wildly effective is in insulating capitalist hierarchies from harm during these moments of would-be social change.…the combination of fiscal, monetary, and industrial policies in the austerity playbook have dealt a lasting blow to the working classes and their expectations of a different socio-economic system’.

(To be continued)

Copyright Business Recorder, 2025