When the International Monetary Fund released its Governance and Corruption Diagnostic Report on Pakistan, it did more than publish another technical document. It issued a damning indictment of how an entire state apparatus has been hollowed from within. The report is one of the most comprehensive assessments the IMF has ever conducted on Pakistan, and its conclusions are unambiguous: corruption is not a side-effect of Pakistan’s governance structure—it is the organising principle around which the state functions.
A State Engineered for Leakages, Not Delivery
The IMF’s assessment points to a staggering reality. Pakistan’s fiscal crisis, chronic debt dependence, and repeated bailouts are not caused by external shocks alone; they arise from a political economy built around leakage. From the Federal Board of Revenue to provincial departments, from the power sector to state-owned enterprises, the institutions meant to deliver public services or regulate markets have instead become mechanisms of political financing, patronage, and rent extraction.
Over decades, successive governments have treated public institutions as dispensable tools for rewarding loyalists or facilitating illicit enrichment. Senior bureaucratic posts are routinely auctioned through political influence. Procurement processes across energy, infrastructure, and defence are designed to favour pre-selected intermediaries. At every point where public money moves, a parallel network designed to divert it shadows the official system.
The result, as the IMF notes, is a situation where Pakistan loses an estimated 5–6% of GDP every year purely to corruption and governance failures—a number so large that it exceeds the country’s entire annual federal development budget.
A Rotten Core: Revenue, SOEs, and the Power Sector
Pakistan’s tax system is singled out as one of the most distorted in the developing world. Less than 3% of the population files returns, while politically connected sectors—agriculture, retail, real estate, and traders—enjoy exemptions worth billions. The IMF report makes it clear that powerful lobbies have captured policymaking to such an extent that the state cannot raise revenue without their permission.
State-owned enterprises, meanwhile, bleed public money at a rate that would be unsustainable in any functioning economy. The annual losses of Pakistan’s major SOEs are larger than the country’s entire higher education budget. The power sector—long described as the “black hole” of Pakistan’s economy—faces circular debt exceeding PKR 2.6 trillion, largely due to politically sanctioned non-payment, theft, and inflated contracts.
Behind every crisis lies a network of complicit officials, contractors, politicians, and brokers. The IMF report notes that procurement rules are routinely circumvented through emergency provisions or special exemptions, particularly in infrastructure and defence contracting.
Institutions in Name Only
What makes the corruption problem uniquely destructive in Pakistan is that every accountability institution has itself been compromised. The IMF highlights that:
Anti-corruption agencies cannot prosecute without political clearance.
Auditors lack independence and face intimidation when they expose irregularities.
Regulators are staffed with political appointees who protect the interests they are meant to oversee.
The judiciary suffers from chronic delays, inconsistent rulings, and susceptibility to political pressure.
In such an environment, enforcement disappears entirely. Contracts cannot be enforced. Fraud cannot be prosecuted. Public money can be siphoned with impunity.
This institutional decay has consequences that go far beyond balance sheets. It drives businesses out of the formal economy, deepens public distrust, and pushes international partners to question the credibility of any reform claim emanating from Islamabad.
A Country Held Together by Bailouts
Pakistan today is a paradox: a state with nuclear weapons, a large military, and an enormous bureaucracy that nonetheless cannot fund its own operations without foreign loans. The IMF’s findings underscore this contradiction. Pakistan has entered 23 IMF programmes—more than any other country—but has implemented deep governance reforms in none.
Each bailout fills fiscal gaps temporarily but worsens structural distortions by injecting money into the same leaking channels. The political class, rather than addressing corruption, uses external financing to prolong patronage networks.
The IMF’s diagnostic report warns that Pakistan’s governance breakdown is now so severe that future economic stability is impossible without dismantling the patronage machinery that controls public institutions.
The System Is Working Exactly as Designed
The most striking conclusion—echoed by IMF officials, independent economists, and Pakistani civil society—is that Pakistan’s economic trauma is not accidental. It is engineered. The purpose of the state is not to deliver public goods but to distribute favours, rents, and privileges to a narrow elite. This system has endured military rule, civilian governments, and hybrid arrangements because all have relied on the same patronage structure to maintain power.
Thus, corruption is not a malfunction. It is the model.
Pakistan can add the equivalent of 5–6% of GDP simply by governing competently—an extraordinary statistic that reflects the sheer scale of national loss. For a country that borrows to pay salaries and cannot meet basic import bills without emergency support, this is not just economic mismanagement; it is national self-sabotage.
The Road Ahead: Reform or Ruin
The IMF’s document is a warning shot. Without sweeping, politically painful reforms—such as ending discretionary tax exemptions, overhauling SOEs, insulating regulators, and depoliticising the bureaucracy—Pakistan will continue its slide into deeper insolvency. The state is already spending more on debt servicing than on health, education, and defence combined.
Pakistan’s ruling institutions now face a choice: dismantle the patronage machine that sustains them, or watch the country drift into perpetual financial dependence.
At present, all indications suggest they will choose the latter.
