The International Monetary Fund has issued a stark warning about Pakistan's deepening economic crisis, identifying persistent corruption and systematic state capture as fundamental problems crippling the nation's growth potential. According to a comprehensive governance assessment requested by the Pakistani government itself, public policy is being manipulated to benefit a small circle of political and business elites at the expense of national development.
Elite Privilege and Economic Distortion
The IMF's Governance and Corruption Diagnostic Assessment, finalized in November 2025, presents a disturbing picture of how corruption in Pakistan operates. The 186-page report describes the phenomenon as persistent and corrosive, fundamentally distorting markets, eroding public trust, and undermining fiscal stability. The document emphasizes that without dismantling structures of elite privilege, economic stagnation will continue to plague the country.
Stefan Dercon, professor of economic policy at the University of Oxford, highlighted the core issue: Failure of implementation of laws and principles of accountability gives vested interests too often free rein and addressing this must be at the core of efforts for economic reform.
The report identifies that corruption becomes most damaging when privileged entities exert undue influence over key economic sectors, particularly state-owned or affiliated industries. The IMF estimates that tax exemptions and subsidies to such entities drain billions annually, severely limiting private sector growth and competition.
Institutional Failures and Systemic Weaknesses
The IMF assessment points to several critical institutional weaknesses contributing to Pakistan's governance crisis. The Special Investment Facilitation Council (SIFC), established in June 2023 to promote investment, operates with limited transparency and legal accountability. The report urgently recommends that the council publish annual investment reports and provide detailed information about concessions granted.
Pakistan's judicial system and anti-corruption bodies also face severe criticism. The judiciary is grappling with over two million pending cases, creating massive delays in justice delivery. Meanwhile, the National Accountability Bureau (NAB) and Federal Investigation Agency (FIA) are flagged for selective accountability that has damaged public trust.
Despite recovering 5.3 trillion rupees (approximately $17 billion) during 2023-24, NAB's low conviction rates remain concerning. The report also criticizes recent constitutional amendments that created a parallel Federal Constitutional Court, warning this could increase executive influence over judicial appointments.
Path to Recovery and Reform Potential
The IMF report offers both warning and hope, estimating that Pakistan could achieve 5-6.5% GDP growth over five years by implementing comprehensive governance reforms. This represents significant potential for a country whose GDP stood at $340 billion in 2024.
Ali Hasanain, associate professor at Lahore University of Management Sciences, confirmed that the IMF's conclusions align with previous domestic and international studies. Powerful interests shape rules to maintain their advantage, Hasanain told Al Jazeera, referencing similar findings in a 2021 UNDP report.
Pakistan's economic challenges have forced the country to seek IMF assistance 25 times since 1958. The current program under Prime Minister Shehbaz Sharif involves a 37-month, $7 billion arrangement, with a $1.2 billion tranche expected next month. The nation narrowly avoided default in 2023, highlighting the urgency of addressing systemic corruption issues.
The report concludes that state capture and elite privilege—manifested through tax exemptions, regulatory capture, and subsidies—remain systemic challenges that must be confronted directly. Implementing genuine reforms could significantly restore economic growth, fiscal stability, and public trust in Pakistan's institutions.
