A three-member International Monetary Fund (IMF) mission is set to visit Pakistan to conduct a Governance and Corruption Diagnostic Assessment under the 2024 Extended Fund Facility (EFF), the finance ministry confirmed, though without specifying dates. The mission’s findings will shape key structural reforms aimed at addressing corruption vulnerabilities, strengthening governance, and ensuring sustainable economic management. While Pakistan faces longstanding elite resistance, successful implementation of IMF-backed reforms could transform the country’s economic trajectory, laying the foundation for transparency, financial discipline, and institutional integrity. However, the entrenched practice of manipulating institutions to serve political ends remains a formidable challenge, threatening the very foundation of these reforms.
Unlocking Fiscal Stability
A central focus of the IMF mission is fiscal governance, particularly broadening the tax base and ending revenue leakages. Pakistan has long struggled with one of the lowest tax-to-GDP ratios in the region, as wealthy landowners, industrial elites, and politically connected businesses sidestep taxation. If reforms tighten revenue collection mechanisms, phase out exemptions, and improve compliance, the state could generate substantial resources for public investment. This would reduce dependency on foreign loans, allowing Pakistan to redirect funds toward infrastructure, healthcare, and education—sectors crucial for long-term economic stability.
However, past attempts to reform taxation have been systematically undermined by elite influence, with politically linked groups pushing back against broad-based taxation. If the government gives in to pressure once again, the IMF’s proposed fiscal overhaul could falter, leaving Pakistan trapped in its familiar cycle of revenue shortfalls and fiscal crises.
Ensuring Monetary Policy Independence
The IMF’s emphasis on central bank governance aims to ensure autonomy in monetary policy and exchange rate management. Historically, political interference in the State Bank of Pakistan (SBP) has led to artificial rupee stabilisation, excessive borrowing, and inflationary pressures. If the SBP can steer monetary policy free from external influence, Pakistan’s financial system will gain credibility, attract investors, and stabilise inflation, enabling long-term economic planning.
Yet, recent trends suggest that central bank autonomy remains vulnerable to political maneuvering. The government’s frequent reliance on deficit financing through excessive borrowing from commercial banks, often at exorbitant interest rates, undermines monetary stability. Without firm institutional safeguards, IMF-backed monetary reforms may fail to insulate economic policy from short-term political interests.
While the IMF provides a clear framework, enforcement requires political will to confront vested interests that thrive on weak governance and regulatory loopholes
Strengthening the Financial Sector
Another area under IMF scrutiny is financial sector oversight, which, if strengthened, could unlock credit access for businesses and entrepreneurs. Currently, Pakistan’s banking system favors elite borrowers, with politically linked entities often securing loans without adequate collateral, leading to high levels of non-performing loans. If reforms enforce strict lending criteria, improve credit risk assessments, and expand financing options for small and medium enterprises (SMEs), Pakistan could spur entrepreneurship, job creation, and industrial expansion. A well-regulated financial sector would channel capital into productive areas rather than serving vested interests.
However, the weaponisation of financial institutions remains a major hurdle. Accountability mechanisms such as the National Accountability Bureau (NAB) have been used selectively, targeting political opponents while shielding those aligned with the ruling elite. Without an impartial enforcement mechanism, financial oversight reforms may fail to curb systemic corruption.
Breaking Market Monopolies
The IMF team will also push for stronger market regulation, particularly in the energy, commodity, and service sectors, which are often manipulated by cartels and politically connected business groups. If the government can clamp down on monopolistic practices, ensure fair competition, and restructure state-owned enterprises, it could enhance productivity, lower consumer costs, and create a level playing field. A competitive market would attract foreign and local investments, increasing efficiency and economic diversification.
Yet, efforts to regulate industries have frequently been thwarted by influential business lobbies, who use political influence to roll back reforms. Unless Pakistan can break free from elite capture, IMF-backed market regulations may fail to disrupt entrenched monopolies.
Strengthening the Rule of Law for Sustainable Growth
Perhaps the most transformative yet challenging aspect of the IMF framework is governance and rule of law reforms. Pakistan’s economic decision-making has long been plagued by selective accountability, weak contract enforcement, and judicial inefficiencies. Businesses and investors often shy away from long-term commitments due to uncertainty in dispute resolution and widespread bureaucratic inefficiencies.
The manipulation of institutions for political gain has only deepened these governance challenges. Recent attempts to alter judicial appointments through the 26th Constitutional Amendment and the use of NAB and police to suppress opposition figures have weakened the credibility of the legal system. Additionally, the curbing of civil liberties, including restrictions on the right to assembly and free speech, has stifled democratic accountability, creating an environment where policy decisions are driven by political expediency rather than economic merit.
If IMF-backed reforms can reinforce judicial independence, strengthen regulatory enforcement, and eliminate legal loopholes that allow corruption to flourish, Pakistan could attract investment, improve business confidence, and establish a fair economic playing field. However, without a strong commitment to de-politicising institutions, rule-of-law reforms risk becoming another unfulfilled promise.
Curbing Illicit Financial Flows
Pakistan’s compliance with anti-money laundering (AML) and counter-financing of terrorism (CFT) regulations has improved, yet illicit financial flows and tax evasion remain concerns. If reforms tighten financial monitoring, enhance digital transaction tracking, and eliminate informal cash-based channels, the government could increase tax revenues and curb capital flight. A robust AML-CFT framework would also improve Pakistan’s global financial standing, reducing the risk of sanctions or blacklisting.
However, previous efforts to crack down on illicit financial networks have been met with institutional resistance, as powerful groups continue to exploit regulatory gaps for financial gain. If Pakistan fails to implement strict oversight, the IMF’s AML-CFT agenda could prove ineffective in curbing money laundering and financial crime.
Can Reform Implementation Break Elite Resistance?
The real test for Pakistan is whether it can implement these reforms despite elite opposition. While the IMF provides a clear framework, enforcement requires political will to confront vested interests that thrive on weak governance and regulatory loopholes. If Pakistan follows through with full implementation, the transformation could be profound—boosting economic resilience, improving governance credibility, and fostering inclusive growth.
However, if reforms are diluted or reversed, Pakistan risks remaining trapped in a cycle of financial crises, bailouts, and stagnation. The IMF’s next review in March will be a crucial litmus test for the country’s commitment to change. The potential for transformation is evident, but only if reforms are executed without compromise.