The International Monetary Fund has published a damning report on corruption in Pakistan, holding the government responsible for the rampant evil. In its recently released Governance and Corruption Diagnostic Assessment (GCDA) report, the IMF has highlighted what has long been known at the public level: that corruption is the bane of Pakistan’s economy and a big hurdle to growth. It is corruption which has kept a resource-rich country like Pakistan backward and made it a laggard among its peers in the region and beyond.
The IMF says that the rising corruption trend in Pakistan is driven by weaknesses in the state institutions and demanded immediate implementation of a 15-point reform agenda to improve transparency, fairness and integrity. According to the report, Pakistan could accelerate economic growth by about 5 to 6.5 per cent if it implements the long overdue governance reforms. Increasing corruption over the years has had a negative impact on public spending effectiveness and revenue collection, and eroded trust in the legal system.
Corruption especially flourishes due 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 (SOEs). To quote the report, “Shortly after independence, Muhammad Ali Jinnah, Pakistan’s founding father, denounced corruption in 1947 as a poison that needed to be eradicated. More than 70 years later, corruption continues to hinder Pakistan’s macroeconomic and social development by diverting public funds, distorting markets, impeding fair competition, eroding public trust, and constraining domestic and foreign investment.”
The IMF report contains some scathing remarks on the country’s taxation system which it says is complex and full of loopholes and exemptions. It has identified an overly complex and opaque tax system administered by tax and customs authorities operating with insufficient capacity and parliamentary oversight. No wonder, Pakistan’s tax-to-GDP ratio is low and falling, mainly due to the complexity of the tax system, frequent changes in rules, and low public trust in the government. Neither does the IMF report spare the judicial system which it says cannot enforce contracts or protect property rights due to outdated and antiquated laws, and questionable integrity of judges and judicial officers.
What specially fuels corruption is the government’s unchecked discretionary power over how public money is spent. Due to this, there are always marked differences between enacted budgets and actual expenses. This is facilitated by lack of public transparency parliamentary engagement in budgetary matters. According to the IMF, the system is extremely vulnerable to political influence due to which much of public investment is wasted.
According to the IMF, corruption is a highly damaging feature of Pakistan’s governance which is manifested by the fact that an average Pakistani is required to pay bribes to government officials for access to services. The root of the evil is that at a higher level policies and practices are shaped and formulated by economic and political elites who cavalierly misuse public authority to enrich themselves at the cost of greater societal good.
After diagnosing the issue, the report suggests short-term as well as long-term structural reforms to improve governance, combat corruption and ensure sustainable growth led by the private sector. The IMF’s 15-point reform agenda, above everything else, emphasises accountability of state functionaries and an end to special privileges given to major public institutions in government contracts. It says that all government procurements should be shifted to an e-governance system as soon as possible, and there should be strict parliamentary checks over all the government’s financial powers. The report also urges greater transparency and accountability in policymaking and implementation, including more open access to fiscal information.
These measures are designed to address weaknesses in public sector performance and enhance accountability and the functioning of anti-corruption structures. The overall aim is to strengthen transparency and accountability in policy formulation, implementation and monitoring, improve access to information and strengthen the capacity of state and non-state stakeholders to participate effectively in the governance system and economic decision-making.
Among other things, the IMF has demanded that all public sector procurements should eliminate preferences for SOEs, including special provisions for direct contracting. It has urged making public the first annual report of the SIFC, including information on all investments it has facilitated, including special concessions provided to individuals and groups along with detailed explanation and the final outcomes. It said that given its broad and disparate organisational functions and authority, it was essential for the SIFC to develop clear protocols for undertaking its activities and enhanced transparency arrangements to enable effective oversight and accountability. More importantly, it has questioned the SIFC’s creation itself and the immunity its staff enjoys in decision-making. It said the council was created by amendment in the Board of Investment law to accelerate investment and privatisation efforts, but the BoI continues to exist. This dichotomy needs to be explained.