## IMF Technical Assistance Report – Pakistan Governance and Corruption Diagnostic (tarea2025098-source-pdf) ## Source details **Canonical URL:** [IMF Technical Assistance Report – Pakistan Governance and Corruption Diagnostic (tarea2025098-source-pdf)](https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025098-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/tar/2025/english/tarea2025098-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/tar/2025/english/tarea2025098-source-pdf.pdf.json) --- ### PREFACE & MISSION - IMF led a Governance and Corruption Diagnostic (GCD) for the Government of the Islamic Republic of Pakistan with World Bank participation. - Field visits: - Scoping mission: February 6 to 14, 2025 - Main mission: April 3 to 14, 2025 (Islamabad and Karachi) - Mission leadership and selected team members: - Mission chief: Joel Turkewitz - Deputy mission chief: Jonathan Pampolina - Team: Jesper Berg (STX), Frank van Brunschot, Kuena Diaho, Fahad Hasan (World Bank), Yasemin Hurcan, Mohammed Sultan Yousuf Janahi (STX), Zhentu Liu (World Bank), Peter Mullins (STX), Nusula Nassuna, Wajahat Ali Shah (World Bank), Sally Toms, Miguel Vieira Toro, Christophe Waerzeggers. - Additional assistance: Ben French (STX) on political economy analysis. - Institutional engagement: - Over 100 meetings with senior officials, regulators, enforcement bodies, SOEs, banks, civil society, and international partners. - Pakistan focal point: Kamran Ali Afzal, Cabinet Secretary. - IMF Resident Representative: Mahir Binici. - Financial support: Generous financial support of the Government of Japan enabled the GCD. - Analytical scope: Based on information obtained as of end of the April 2025 main mission; does not capture reforms introduced since April 2025. ### EXECUTIVE SUMMARY — PURPOSE, CONTEXT, AND MACRO BACKDROP - Scope: Assess nature and severity of corruption in Pakistan and identify governance weaknesses with macroeconomic consequences across: - Fiscal governance, public procurement, SOEs, tax policy/administration - Market regulation - Financial sector oversight - AML/CFT - Rule of law (contracts, property rights, judicial integrity) - IMF program context: - 37-month US$7 billion Extended Fund Facility (EFF) approved on September 25, 2024. - Program priorities include: entrenching macroeconomic sustainability, strengthening competition, SOE reform, energy sector viability, and climate resilience. - Recent macro performance cited: - Primary surplus of 2.0 percent of GDP in first half of FY25; on track for end-FY25 target of 2.1 percent of GDP. - Inflation fell to 0.3 percent in April; SBP cut policy rate. - Gross reserves: US$10.3 billion at end-April (up from US$9.4 billion in August 2024); projected US$13.9 billion by end-June 2025. ### SUMMARY FINDING — CORRUPTION AND MACROECONOMIC IMPLICATIONS - Corruption is persistent and macro-critical, affecting public spending effectiveness, revenue collection, trust in legal institutions, competition, and investment. - Most damaging manifestations: privileged entities exerting influence over key sectors, including state-affiliated entities and SOEs. - Perception of inconsistent and partial enforcement reduces public confidence in enforcement institutions. - IMF GCD found systematic governance weaknesses across state functions with concrete macroeconomic implications. ### EXPECTED MACRO BENEFITS FROM REFORMS - IMF analysis projects Pakistan could generate between a 5 to 6.5 percent increase in GDP by implementing a package of governance reforms over the course of 5 years. - The reform package analyzed includes improvements in governance and anti-corruption, business regulation, and regulation of foreign trade. --- ### I. Cross-cutting Governance Weaknesses and Vulnerabilities ### Key cross-cutting weaknesses - Budgeting and fiscal reporting weaknesses; weak management of capital spending, procurement, and state assets including SOEs. - Overly complex and opaque tax system with insufficient capacity and oversight. - Proliferation of intrusive and overlapping regulations administered by insufficiently independent regulators. - Judicial sector complexity, large case backlog, inefficiencies, antiquated laws, and integrity concerns. - Fragmentation among accountability institutions and limitations in operational independence. - Low rate of corruption-related money laundering convictions despite FATF grey-list removal; challenges in identifying suspicious transactions and monitoring PEPs. - Concentration of sectoral resources towards the state, crowding out private sector activity. ### Capacity, transparency, and state role - Extensive state role, ambiguous mandates, frequent ad hoc arrangements, and blurred accountability lines. - Capacity constraints across ministries/agencies, weak internal controls, underinvestment in management systems. - Limited access to public information and constrained non-state engagement platforms. - Discretionary allocation of economic advantages to well-connected actors weakens rule-based governance. ### Selected sectoral characterizations (summarized) - Tax Policy: complexity, ad hoc changes, tax preferences managed by non-tax authorities (e.g., SEZs). - Revenue Administration: FBR operates with high autonomy and weak internal controls; PRAL outsourcing/data risks. - Public Financial Management: weak budget credibility; prevalence of supplementary grants; weak Single Treasury Account framework; fragmented debt management; fragmented procurement privileging state parties. - Market Regulation: proliferation of regulators, overlapping rules, high compliance costs, regulatory capture risks. - Financial Sector Oversight: generally sound but concerns remain about regulator independence and state asset weight in banks. - AML/CFT: legal and institutional framework improved, but low effectiveness against laundering of corruption proceeds; beneficial ownership data hard to verify. - Rule of Law: judicial governance weaknesses, backlogs, mixed success of special courts, HR practices raising judicial independence concerns. - Anti-corruption: over-reliance on a single prosecution institution; preventative measures improved but under-utilized for risk-based scrutiny. ### Selected alarming indicators and statistics - National Accountability Bureau recoveries (January 2023–December 2024): PRs 5.310 trillion. - Example cited: PRs 1.240 trillion Economic Stimulus Package for COVID-19. - Pakistan WJP control of corruption score (2015–2024): remained constant at 0.38 to 0.39 out of 1.00. - World Bank Enterprise Survey 2022: 11.1 percent of businesses viewed corruption as the biggest obstacle to doing business (South Asia average: 7.4 percent). - FBR 2024 tax gap estimate: PRs 3.4 trillion (approximately 3.9 percent of GDP) — note: report not shared with mission team. - Pakistan tax-to-GDP: around 10 percent of GDP over the past 5 years. - Export share of GDP: fell from 16 percent in 1990 to 9 percent (text: "9 percent today"); export-to-GDP ratio decline to just above 10 percent in 2024 noted elsewhere. - From July 2024 to February 2025 FDI: $1.618 billion (41 percent rise from $1.147 billion same period previous fiscal year). - Banking sector: credit to the state accounts for over 60 percent of total bank assets; 80 percent of bank lending directed towards government or SOEs in cited statistics. - Federal SOEs (FY2020): combined output 12 percent of GDP and combined assets valued at 48 percent of GDP. - State employment: 72 percent of individuals with formal jobs employed by the state (text preserved). - Government estimated tax expenditures: 4.61 percent of GDP in FY 2023. - Average applied tariff rate: 20.19 percent (highest in South Asia); regional average 10.57 percent. - Pakistan legal/judicial backlog: over 2 million pending cases. - WGI Rule of Law index: Pakistan score 14.62 (out of 100) vs lower-middle income average 32.89. --- ### II. Priority Recommendations and Timelines (selected and verbatim where provided) ### Overarching timing definitions - ST = 6 months or less - MT = 6 to 18 months - LT = 18 months to 36 months ### Addressing governance weaknesses constraining private sector development (selection) - Improve public procurement: eliminate preferences for State-Owned Enterprises; mandate use of the e-Government Procurement system for all procurement transactions within 12 months. - Responsible Authority: Public Procurement Regulatory Authority - Timeline: MT - Enhance SIFC transparency: produce and make public the first annual report of the Special Investment Facilitation Council including deals facilitated, concessions, rationale and estimated value. - Responsible Authority: Special Investment Facilitation Council - Timeline: MT - Under SECP leadership, enhance regulatory consistency within 18 months by: (1) establishing a comprehensive database of all federal business regulations; (2) eliminating unnecessary regulations based on structured systematic review; (3) creating a review process based on international good practice for all new regulatory proposals. - Responsible Authority: Securities and Exchange Commission of Pakistan (SECP) - Timeline: MT - Digitize regulatory compliance processes within 15 months: establish list of regulatory processes to be digitized and demonstrate progress. - Responsible Authority: SECP, Ministry of Information Technology and Telecommunication - Timeline: MT - Reduce backlog of economic disputes: publish methodology to assess court/judge performance (year 1) and publish first performance report covering Administrative Tribunals and Special Courts (year 2). - Responsible Authority: Ministry of Law and Justice - Timeline: ST/MT ### Addressing governance weaknesses in public sector functions (selection) - Publish a tax simplification strategy by May 2026 to reduce rate schedules, special regimes, excessive withholding and advance taxes, rationalize tax exemptions, scale back rulemaking power, and annually report on implementation. - Responsible Authority: Tax Policy Office (TPO); Ministry of Finance (MOF) - Timeline: ST/MT - Strengthen FBR governance: improve organizational structure, reduce field offices' autonomy, enhance HR practices, and improve risk identification. - Responsible Authority: FBR - Timeline: ST/MT - Publish PRAL audit findings within 12 months and produce initial public report tracking FBR response to major audit findings. - Responsible Authority: Auditor General; FBR - Timeline: MT - Improve top-down budget process and avoid in-year adjustments without Parliament’s ex-ante approval; introduce contingency reserve for flexibility. - Responsible: Cabinet; Finance Division - Timeline: ST ### Selected public financial management recommendations (from Table 6) - Enforce 10% cap on new PSDP projects and rationalize portfolio to retain high-priority initiatives; FY2024-25 PSDP: PRs 1,400 billion (7 percent of total federal government expenditure); total federal government expenditure: PRs 18,877 billion. - Responsible: Ministry of Planning Development & Special Initiatives; MOF - Timeline: ST/MT - Strengthen TSA and cash forecasting sectorization and implement forward-looking cash forecasting. - Responsible: Finance Division (Budget Wing, Expenditure Wing) - Timeline: ST - Centralize debt management under the DMO and consolidate data in DMFAS with reconciliation; publish retrospective reports comparing actions with announced borrowing plans. - Responsible: Finance Division, Ministry of Economic Affairs - Timeline: ST (ongoing) - Enforce PFM Act Article 26 for internal controls and internal audit functions. - Responsible: Cabinet, Finance Division, OAG - Timeline: MT - Improve OAG independence by promulgating a new AGP Act and ensuring budget/hiring autonomy. - Responsible: Cabinet, Finance Division, OAG - Timeline: LT ### Revenue administration and tax policy priorities (selected) - Complete establishment of Tax Policy Office (TPO); ensure clear separation of tax policy functions from FBR. - Responsible Authority: Ministry of Finance - Timeline: ST (target: TPO close to fully functioning by end of 2025) - Publish medium-term tax simplification strategy (3-to -5 year) and annual reporting on implementation; prioritise reduction of rate schedules, special regimes, excessive withholding/advance taxes, and rationalize exemptions. - Responsible Authority: TPO; Ministry of Finance - Timeline: MT (strategy to be published by May 2026) - Expand Tax Expenditure Statement coverage to include cost/benefit assessments of the most significant tax expenditures. - Responsible Authority: Ministry of Finance - Timeline: ST (ongoing annually) ### FBR operational reforms (selected) - Strengthen HQ functions, reduce field office autonomy, establish executive committees and risk management functions. - Responsible Authority: FBR - Timeline: MT - Establish an independent internal audit function with clear mandate. - Responsible Authority: FBR - Timeline: ST - Undertake an independent IT systems audit (AG). - Responsible Authority: AG - Timeline: ST - Strengthen oversight of PRAL: comprehensive risk register, regular assurance reporting, internal audit, independent audit logs consolidated in tamper-resistant repository. - Responsible Authority: FBR / PRAL - Timeline: ST - Establish an Internal Affairs Unit within FBR reporting directly to the Chairman to receive complaints and investigate misconduct. - Responsible Authority: FBR - Timeline: MT - Publish data on complaints, investigations, sanctions, and case referrals to enforcement agencies. - Responsible Authority: FBR - Timeline: MT --- ### III. PRAL, IT, HUMAN RESOURCES, AND RISK CULTURE ### PRAL (Pakistan Revenue Automation Ltd) - Role: technology arm of FBR, manages taxpayers' data and IT infrastructure; operates under SOE Act with autonomous board (FBR holding one seat). - Risks and governance weaknesses: - Lacks systematic overview of data management and security risks; no risk register. - Transaction logs reviewed only post-incident; no proactive monitoring. - No code of conduct/conflict of interest policy developed despite legal requirement. - Internal audit mandate does not include independent technical system reviews. - Auditor General not permitted to conduct Information Systems Audits (ISAs). - Data governance policy approved but not shared with mission team. - Oversight recommendations: - Require active monitoring systems, comprehensive risk register, regular assurance reports, internal audit, and independent tamper-resistant log consolidation. ### FBR Human Resources and Internal Affairs - HR weaknesses: - No HR strategy; high turnover among senior management (no chairman has completed a full term since 1988; average tenure since 2013 for chairmen: 8.8 months). - PMS launched April 2025 for senior staff (grades B17 and above) with integrity parameter weight: 60 percent; bonus structure based on quintiles. - PMS improvements noted but requires broader HR strategy, updated code of conduct, training, and verification mechanisms. - Internal affairs and complaints handling gaps: - No dedicated internal affairs unit; complaints fragmented across multiple internal and external avenues with no consolidation or periodic reporting to chairman. - Investigative and sanction framework fragmented and ambiguous; proposals for senior staff disciplinary proceedings require chairman or Prime Minister approvals depending on grade. - Criminal prosecution is possible but rare; FBR could not provide data on criminal prosecutions. ### Risk culture - Weak risk culture: no independent risk committee, absence of risk register, inappropriate reporting lines for internal audit functions, failures in separation of duties. - Examples of vulnerabilities: non-observance of Public Procurement Rules (AG irregular expenditure PRs 579 million), poor segregation of duties in audits/refunds processing, inappropriate assignment in IT breach response. --- ### IV. CUSTOMS, TRADE, TARIFFS, AND MARKET REGULATION ### Customs operations and digitization - Customs digitized (WeBOC), records transactions per officer (user ID and timestamp). - Control channel composition: Green 56-60 percent, Yellow 20 percent, Red 15-20 percent. - No structured routine analyses to mitigate corruption risks; no audit trail for green channel inspections. - Export management vulnerabilities: physical confirmation of exported goods needs improvement; risk of goods exiting on paper but diverted to domestic market. ### Tariff structure and trade policy - Average applied tariff rate: 20.19 percent (Pakistan) vs 10.57 percent regional average. - Tariff composition: 11.93 percent customs duty; 3.66 percent additional customs duty; 4.60 percent regulatory duties. - Tariffs account for almost 50 percent of total tax revenue (text preserved: "Government relies on taxes of international trade as a major source of revenue, comprising almost 50 percent of total tax revenue"). - National Tariff Policy 2025–30 aims to phase out ACDs within four years and RDs within five years; consolidate slabs and transition exemptions to rules-based framework. ### Market regulation and regulatory fragmentation - Approximately 120 federal regulatory bodies (plus many provincial). - Manufacturing firms face over 170 separate registrations/licenses; mining businesses face more than 70 regulatory hurdles. - Regulatory reform progress: Pakistan Regulatory Modernization Initiative (PRMI) and SECP digital reforms; company incorporation largely digitized. - Recommendations: - Create comprehensive database of federal business regulations and systematic regulatory reviews. - Introduce mandatory review process (RIA) for new regulations. - Strengthen independence and merit-based appointment processes for regulators (CCP, SECP). - Expand digitization of compliance processes (15 months target to establish list and demonstrate progress). --- ### V. FINANCIAL SECTOR OVERSIGHT, AML/CFT, AND BENEFICIAL OWNERSHIP ### Financial sector oversight — key statistics and issues - Banking sector assets: around 48 percent of GDP at end June 2024; banking sector ~80 percent of financial sector assets. - Number of banks: 31 banks (5 public, 20 private, 4 foreign branches, 2 specialized). - Branch network: approximately 17,000 branches. - Islamic banking institutions: IBIs constitute around 19 percent of total assets and 23 percent of total deposits at end June 2024 (22 IBIs). - Financial sector assets as percent of GDP (June 2024): - MFBs: 0.7% - DFIs: 2.3% - NBFIs: 3.8% - Insurance: 3.0% - CDNS: 3.0% - Banks: 48.7% - Total: 61.5% - Banks: credit to government >60 percent of assets; banks earn ROE above 25 percent; expected decline in interest rates may reduce profitability. - SBP has implemented Basel III (minimum solvency 15 percent including capital conservation buffer), LCR and NSFR requirements, designated three D-SIFIs, and a resolution framework without TLAC requirement. ### SBP governance and recommendations (selected) - SBP Act grants functional and institutional autonomy; Board includes Governor (chair), eight non-executive Directors, and Secretary Finance Division (non-voting). - Recommendations include: - Change SBP Act to remove Secretary of Ministry of Finance from Board and require publication of reasons for removal of Governor/Deputy Governors/Non-executive Directors. - Fill two vacant Deputy Governor positions. - Revise banking supervision objective in law to align with BCP: "promote the safety and soundness of banks and the banking system." - Remove Ministry of Finance power to instruct SBP inspections. - Publish supervisory objectives, priorities and plans and end-of-year record of supervisory work. - Ensure early use of corrective and sanctioning framework for undercapitalized banks. ### AML/CFT assessment and reform priorities - Pakistan recognizes corruption as a major predicate offense (NRA 2023). - Institutional architecture: - FMU: financial intelligence unit; reports to Ministry of Finance. - National AML/CFT Authority (2023): leads national coordination. - SBP and SECP: sectoral AML supervision. - NAB and FIA: investigations/prosecutions (NAB jurisdiction >PRs 500 million). - Recent outcomes (2023–2024): - Monetary penalties > PRs 944 million imposed against 17 banks for AML/CFT gaps. - DNFBPs fines: PRs 2.6 million. - Key weaknesses: - Low rate of corruption-related ML convictions; limited follow-up on FMU disseminations. - BO framework: SECP portal allows requests but BO registry not publicly accessible; S.R.O. 1356(I)/2025 requires electronic BO submission for FY ending June 30, 2025. - Legal ambiguity in Section 3 of AMLA 2010 on requirement for predicate conviction; recommendation to remove ambiguity so ML can be prosecuted without requiring predicate conviction. - Inter-agency coordination mechanisms are underutilized; National AML/CFT Authority needs staffing/resources; information sharing and unified case-tracking platform lacking. - Recommended AML/CFT actions (selected from Table 12 and recommendations): - Issue circular aligning agency supervisory and enforcement efforts with corruption-related risk priorities in the NRA. - Responsible: National AML/CFT Authority - Timeline: MT - Prosecute ML as standalone crimes without requiring predicate conviction (clarify Section 3 AMLA 2010). - Responsible: Ministry of Law & Justice - Timeline: MT - Improve BO registry: operational, accessible, and verified; ensure timely access for competent authorities. - Responsible: SECP - Timeline: MT - Standing inter-agency task forces and unified digital platform for real-time tracking and exchange of corruption-linked AML cases. - Responsible Authorities: National AML/CFT Authority; NAB / Ministry of Interior; FMU - Timeline: MT --- ### VI. RULE OF LAW, JUDICIAL PERFORMANCE, PROPERTY RIGHTS, AND CONTRACT ENFORCEMENT ### Judicial system and backlog - Over 2,000,000 pending cases end-2023; system unable to handle new cases at most levels. - Multiplicity of forums: over 3,000 courts and over 324 Administrative Tribunals and Special Courts; fragmentation causes jurisdictional conflicts and delays. - Vacancies in Administrative Tribunals and Special Courts under federal administrative control: total vacant positions 485 (breakdown by province preserved in source). - WGI rule of law percentile: Pakistan in the 21st percentile globally for rule of law in 2023. - V-dem judicial corruption sub-indicator (2024): Pakistan score –1.84 (South Asian average –0.34; Global average 0.19). ### Contract enforcement, insolvency, and property rights - Core statutes: Contract Act 1872 and Code of Civil Procedure 1908 are outdated; reforms needed for modern commercial realities. - Bankruptcy/insolvency: Corporate Rehabilitation Act 2018 and Companies Act amendments exist but practical implementation faces hurdles. - Property rights and land administration: - Fragmented provincial land administration; incomplete digitization and overlapping titles. - Recommended: centralized, publicly accessible database of state-owned property and clear, rule-based procedures for transfers. ### Judicial reform recommendations (Table 15 selection) - Establish a program to reduce backlog of commercial cases and publish progress online. - Responsible: Ministry of Law & Justice, Judicial Service Commission, Supreme Court, & Provincial High Courts. - Timeline: MT - Update legal framework for contracts and produce updated draft Code of Civil Procedure for Parliament. - Responsible: Ministry of Law & Justice. - Timeline: MT - Introduce procedural time limits to reduce delay incentives. - Responsible: Ministry of Law & Justice; Administrative Tribunals & Special Courts. - Timeline: MT - Establish methodology to assess performance of courts/judges reporting to Ministry of Law and Justice and publish results for federal Administrative Tribunals and Special Courts. - Responsible: Ministry of Law and Justice; Federal Administrative Tribunals and Special Courts. - Timeline: MT - Expand ADR mechanisms and enact Arbitration Bill; operationalize ADR centers nationwide. - Responsible: Cabinet (Federal) and Ministry of Law and Justice. - Timeline: MT --- ### VII. ANTI‑CORRUPTION INSTITUTIONS, NAB, FIA, PACEs, AND ASSET DECLARATIONS ### Anti-corruption institutional landscape and challenges - Legal framework: Pakistan Penal Code (1860); Prevention of Corruption Act (1947); National Accountability Ordinance (NAO) (1999); AMLA (2010); Benami Transactions (Prohibition) Act (2017). - Principal enforcement bodies: - NAB: apex anti-corruption body (high-value cases > PRs 500 million after amendments). - FIA: federal crimes and corruption below PRs 500 million. - PACEs: provincial anti-corruption establishments. - NAB recoveries: PRs 5.310 trillion (January 2023–December 2024). - NAB convictions: 31 corruption convictions between 2022–2024 (reported). - Complaint attrition: 57,742 complaints received by NAB (2022–2024) with less than 2 percent moving to next stage of complaint verification. ### NAB governance, selection, and resourcing - NAB Chair appointment: Federal Government after consultation; if no consensus, 12-member parliamentary committee names NAB Chair. - NAB budget: PRs 6.158 billion (2023); PRs 7.11 billion (2024); PRs 7.41 billion (2025) — approximately 0.03 percent of federal budget. - Staffing: NAB estimates >2,000 employees end-December 2024 across HQ and 7 regional offices. - Recommendations: - Strengthen appointment procedure by multi-sectoral stakeholder commission; lengthen term beyond non-extendable three years; preserve removal safeguards comparable to judges. ### Complaint handling, prosecutions, and asset recovery - NAB reformed complaints handling in 2024 requiring affidavits and penalizing frivolous complaints; risk that deterrent effect may discourage valid complaints. - NAB has shifted toward proactive suo moto investigations (21 cases in 2023; 18 in 2024). - NAB asset recovery practice emphasizes early settlement; PRs 5.310 trillion recovered (January 2023–December 2024). - Concerns: voluntary return procedures without court oversight; balancing asset recovery with conviction rates and accountability. ### FIA and PACEs constraints - FIA Anti-Corruption Wing: 19 anti-corruption circles nationwide; conviction levels and investigation volumes not commensurate with risk profile. - PACEs: constrained by approval requirements in some provinces, limited access to databases, and resource limitations; provinces moving to designate PACEs as AML authorities to access FMU information. ### Asset declarations and conflict of interest systems - Asset declaration regimes fragmented across civil servants, judiciary, armed forces; inconsistent publication and verification. - June 29, 2025 amendment to Civil Servants Act requires BPS17+ civil servants to digitally file asset declarations with FBR and make them publicly available. - FBR maintains parallel digital asset declaration system under tax framework; banks being provided access for CDD for PEPs. - Recommendations: - Consider centralized authority to collect, digitize, and publish asset declarations of high-level officials with risk-based verification. - Pilot verification of ADs for a limited high-risk population; combine with lifestyle monitoring under safeguards. - Strengthen Conflict of Interest systems: move beyond honor-based disclosures toward mandatory periodic submission, public access, and independent oversight with dissuasive penalties. - Statistics on penalties for civil servants (2022–2024): Establishment Division recorded 2,110 major penalties and 5,065 minor penalties across 32 Ministries. ### Anti-corruption strategic sequencing - Start with modest, short-term, risk-based actions and a temporary coordination structure to identify severe corruption risks and priority measures. - Over time, transition to updating a national anti-corruption strategy supported by robust risk analysis, implementation timelines, resource allocations, and dedicated coordination body. - Key cross-cutting recommendations (selected Table 19 and Recommendation 4): - Adopt risk-based approach for top-ten high-risk agencies (Year 1 action plan; Year 2 annual reporting). - Demonstrate increased inter-agency information sharing and protocols among NAB, AGP, and FBR for suspicious transaction identification. - Initiate publication of asset declarations in 2026 and risk-based verification. - Establish whistleblower protection regime and Whistleblower Protection and Vigilance Commission. - Pursue membership in Egmont Group, ARIN, and re-engage with Open Government Partnership. --- ### VIII. Implementation Considerations and Sequencing - Recommendations include immediate/short-term technical measures and medium/long-term structural reforms requiring sustained effort and resources. - Many reforms complement ongoing Government initiatives: Central Bank reform, State-Owned Enterprise Law, regulatory cancellations, and NADRA digital ID implementation. - Unifying themes: - Increase transparency and accountability in policy formulation, implementation and monitoring. - Improve access to information and strengthen capacities of state and non-state stakeholders. - Use risk-based approaches, digitization, and institutional strengthening to reduce discretion and corruption vulnerabilities. *Italic: IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic (content as of April 2025 main mission; source: tarea2025098-source-pdf)* ### PREFACE __________________________________________________________________________________________________ 9 ### PREFACE ### Mission overview and participation - The IMF undertook a Governance and Corruption Diagnostic (GCD) for the Government of the Islamic Republic of Pakistan with World Bank participation. - Field visits: scoping mission from February 6 to 14, 2025; main mission from April 3 to 14, 2025 in Islamabad and Karachi. - Mission leadership and team: - Mission chief: Joel Turkewitz - Deputy mission chief: Jonathan Pampolina - Team members: Jesper Berg (STX), Frank van Brunschot, Kuena Diaho, Fahad Hasan (World Bank), Yasemin Hurcan, Mohammed Sultan Yousuf Janahi (STX), Zhentu Liu (World Bank), Peter Mullins (STX), Nusula Nassuna, Wajahat Ali Shah (World Bank), Sally Toms, Miguel Vieira Toro, Christophe Waerzeggers. - Additional assistance: Ben French (STX) on political economy analysis. - World Bank contributors: Fahad Hasan, Zhentu Liu, Wajahat Ali Shah. - Institutional support and engagement: - Over 100 meetings held, including with the Finance Secretary, Chief Justice of the Supreme Court, Governor of the State Bank of Pakistan, Federal Board of Revenue, Ministry of Law and Justice, Law and Justice Commission, National AML/CFT Authority, Securities and Exchange Commission of Pakistan, Privatization Commission, Finance Division, Ministry of Planning and Development, Ministry of Economic Affairs, Financial Monitoring Unit, National Accountability Bureau, Information Commission, Competition Commission of Pakistan, Auditor General of Pakistan, Establishment Division, public and private banks, civil society, academicians, and international partners. - Pakistan focal point: Kamran Ali Afzal, Cabinet Secretary. - IMF Resident Representative in Pakistan: Mahir Binici. - World Bank colleagues supporting the team: Anna Twum, Rafay Khan, Waqas Idrees; guidance from Tobias Akhter Haque. - Research, technical, and administrative support: Natasha Dusabe, Alexandra Rajs, Jeahyun Nham. - Overall guidance and advice: Emmanuel Mathias. - Financial support: The GCD was possible due to generous financial support of the Government of Japan. - Analytical scope and timing: - Report based on information obtained as of end of the April 2025 main mission. - The report does not capture reforms introduced since April 2025. - Analysis and conclusions are those of IMF staff only. ### Acronyms and abbreviations (selected examples preserved as in source) - Examples of acronyms included in the report: ADAT, ADP, ADR, AGP, AGPR, AIT, AML/CFT, ATIR, BCC, BCO, BO, BOI, BOS, BPS, BSF, BSP, CCC, CCoE, CCP, CFU, CIA, CMWG, CPIMA, CRM, CSO, CTBCM, DG, DGIAC, DGIAIR, DGPC, DMO, DNFBPs, DPC, DPCO, DRAP, EDD, EFF, EFZ, EMI, FAB, FABS, FAD, FATF, FBR, FIA, FIC, FMU, FRDL, FSO, FTE, GCD, GOP, GST, I&I C, I&I IR, IMC, LEA, LEG, LLC, MCM, MDA, MFB, MIU, MLA, MOF, MoITT, MTFF, NAB, NACS, NADRA, NAO, NAP, NBP, NEC, NEPRA, NICL, NPL, NRA, NTB, NTC, OAG, OGRA, PAC, PACE, PAO, PBP, PCAA, PCP, PECA, PEP, PFM, PIM, PIMA, PMS, PPP, PPRA, PRAL, PRCL, PRMI, PSDP, PSO, PSP, PSW, PTA, RBS, RCLO, RIC, RSC, RTI, SAI, SAP, SBP, SECP, SEZ, SIFC, SLA, SLIC, SOE, SPR, SRO, STR, STX, SWF, TCMU, TDO, TPO, ZTBL. ### EXECUTIVE SUMMARY ### Purpose, scope, and methodology - The GCD was requested by the Government of the Islamic Republic of Pakistan and initiated in January 2025 by an interdepartmental IMF team (LEG, FAD, SPR, MCM, CSF) joined by World Bank experts. - The GCD focused on examining the nature and severity of corruption in Pakistan and identifying governance weaknesses and corruption vulnerabilities with macro-economic consequences in: - Fiscal governance (public financial management, public procurement, management of state assets including SOEs, tax administration and tax policy) - Market regulation - Financial sector oversight - Anti-money laundering and combating the financing of terrorism (AML/CFT) - Rule of law (with special focus on enforcement of contracts, protection of property rights, and judicial integrity) - Annex A provides additional information on methodology and scope (reference within source). ### Context: IMF program and macroeconomic backdrop - The GCD occurs within the context of a 37-month US$7 billion IMF Extended Fund Facility (EFF) approved on September 25, 2024. - The program aims to build resilience and enable sustainable growth with key priorities: - (i) entrenching macroeconomic sustainability through consistent implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base; - (ii) advancing reforms to strengthen competition and raise productivity and competitiveness; - (iii) reforming SOEs and improving public service provision and energy sector viability; - (iv) building climate resilience. ### Recent macroeconomic performance and projections cited - Fiscal performance: - Primary surplus of 2.0 percent of GDP achieved in the first half of FY25. - On track to meet end-FY25 target of 2.1 percent of GDP. - Inflation and monetary conditions: - Inflation fell to 0.3 percent in April. - State Bank of Pakistan cut the policy rate as a result of disinflation and steadier conditions. - Reserves: - Gross reserves stood at US$10.3 billion at end-April (up from US$9.4 billion in August 2024). - Projected to reach US$13.9 billion by end-June 2025 and continue to be rebuilt over the medium term. ### Structural challenges and reform imperatives - Pakistan faces longstanding structural challenges that weigh on its economic trajectory; the current EFF is the fourth program in 10 years (2013-2016 EFF, 2019-2023 EFF, 2023-24 SBA). - Past programs stabilized the economy but were less successful at institutionalizing reforms and addressing structural weaknesses. - Consequences noted: - Living standards have not kept pace with peer countries in South and Southeast Asia. - Underinvestment in human and physical capital. - Enduring economic distortions linked to the state’s large role in the economy. - Structural fiscal weaknesses and recurrent macroeconomic pressures have contributed to increasing financing needs and external vulnerabilities. ### Focus and constraints of the GCD - The GCD assesses federal-level corruption and governance vulnerabilities with macroeconomic relevance and was requested by the authorities to address governance constraints that have complicated reform implementation. - Analysis and recommendations concern areas established in the IMF’s 2018 Framework on Enhanced Engagement on Governance and do not capture governance concerns beyond that framework. - The exercise was confined to corruption and governance issues at the federal level; the report notes substantial governance concerns that exist among and between provinces but does not cover them. - The report is based on information gathered before and during April 2025 and does not capture reforms introduced since April. - Publication of the GCD by the end of August 2025 is a structural benchmark in the EFF. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | PREFACE & EXECUTIVE SUMMARY (content as of April 2025 main mission)* ### 7. Corruption is a persistent challenge in Pakistan, with significant adverse implications for ### 7. Corruption is a persistent challenge in Pakistan, with significant adverse implications for ### Overview: scale, manifestations, and macroeconomic implications - Corruption indicators reflect weak control of corruption over time with negative consequences for public spending effectiveness, revenue collection, and trust in the legal system. - The most economically damaging manifestations involve privileged entities that exert influence over key economic sectors, including those owned by or affiliated with the state. - Perceptions that the anti-corruption approach has lacked consistency and impartiality have contributed to diminished public confidence in enforcement institutions. - Corruption has significant macro-economic consequences; the Governance and Corruption Diagnostic (GCD) revealed systematic governance weaknesses across state functions. ### Cross-cutting governance weaknesses and vulnerabilities - Pakistan is exposed to corruption risk generated by: - 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. - An overly complex and opaque tax system administered by tax and custom authorities operating with insufficient capacity, management, and oversight. - Overwhelming regulations and intrusive state action related to business formation, entry and operation in specific economic sectors, administered by insufficiently independent regulatory authorities. - A judicial sector that is organizationally complex, unable to reliably enforce contracts or protect property rights due to problems with efficiency, antiquated laws, and the integrity of judges and judicial personnel. - Reliance on courts to enforce contracts or protect property rights is discouraged by the enormous backlog of cases and concerns over the integrity and independence of judicial institutions. - Fragmentation among accountability institutions and limitations in their operational independence exacerbate corruption risks. - Perceived severity and unpredictability of enforcement may contribute to hesitation among senior officials in taking administrative decisions. - Recent anti-money laundering reforms enabled Pakistan to be removed from the FATF grey-list, but much work remains to address the low-rate of corruption-related money laundering convictions, including improving identification of suspicious transactions and effective monitoring of politically exposed persons. - Sectoral resources remain overly concentrated towards the state in the financial sector. ### Capacity, transparency, and state role - The state’s extensive role in the economy, fragmented oversight, limited institutional capacity, and vulnerabilities to corruption contribute to crowding out the private sector. - Ambiguity in public sector mandates and objectives, frequent use of ad hoc arrangements, uneven access to state support, and blurred lines of accountability are prevalent. - Many ministries and agencies face capacity constraints, weak internal controls, and underinvestment in management systems. - Opportunities for engagement by non-state actors are constrained by limited access to public information and absence of engagement platforms. - Rule-based governance is weakened by discretionary allocation of economic advantages to well-connected actors and state-affiliated entities. ### Specific sectoral weaknesses (characterization) - a. Tax Policy: - Complexity in the tax system gives rise to governance weaknesses and corruption vulnerabilities. - Tax policy changes are often made in an ad hoc fashion without notice in response to concerns over insufficient revenue mobilization. - Tax policy is undermined by a range of tax preferences managed by different non-tax authorities such as SEZs, which are often obscure and poorly monitored. - b. Revenue Administration: - Revenue administration centers on the organizational arrangements and practices of the powerful Federal Board of Revenue (FBR). - The FBR operates with a high-degree of autonomy and authority alongside weak or non-functional systems of internal control and internal audit, and accountability for performance or compliance with the law. - FBR’s management and oversight of core risks, such as risks created by entrusting data management to Pakistan Revenue Automation Limited (PRAL), needs significant strengthening. - c. Public Financial Management: - Pakistan has consistently struggled with weak budget credibility, generating macro-critical governance weaknesses. - Supplementary grants— in-year adjustments available to the executive without Parliament’s ex-ante approval—were a regular feature before the Extended Fund Facility (EFF), undercutting the principle that government expenditure should reflect the Legislature’s voted budget. - Shortcomings in public investment management result in failure to protect funding for approved projects over the project life cycle and major project delays and cost increases. - Weak Single Treasury Account framework without a firm institutional coverage decision undermines effective control over the government’s cash balances. - Debt management involves multiple entities with overlapping roles and responsibilities, complicating decision-making and coordination. - Mechanisms for monitoring and accountability are weak in managing financial and non-financial assets and state-owned enterprises. - Public procurement remains fragmented and privileges state parties. - Neither internal nor external auditors have sufficient authority and competency to fulfill mandates. - Institutions designed to operate outside standard fiscal accountability constraints undermine other state institutions and increase corruption risks. - d. Market regulation: - Proliferation of regulatory bodies issues competing and overlapping regulations through obscure and ill-defined processes. - High cost of regulatory compliance, due in part to reliance on manual processes, provides incentives and opportunities for corrupt practices. - Regulatory authorities are frequently perceived as favoring select firms or entrenched cartels, raising concerns about impartiality and regulatory capture. - Systemic challenges persist in enforcing accountability for non-performance and malfeasance in business regulation. - e. Financial sector oversight: - Financial sector oversight is generally sound, with lingering concerns about independence of regulators and risks caused by the weight of state assets in the banking sector. - f. Anti-Money Laundering and Combatting Financing of Terrorism (AML/CFT): - Organizational and legal framework has improved substantially recently, but significant work is required to effectively target laundering of corruption proceeds. - Preventive measures by reporting entities show some signs of improvement; banks occasionally raise questions about corruption-related suspicious transactions. - Issues remain regarding the use of Financial Intelligence Reports by authorities to initiate financial investigations. - Legal ambiguities in the AMLA 2010 hinder timely prosecution, especially when predicate corruption offenses are hard to establish. - Successful use of mutual legal assistance remains limited, partly due to limited formal cooperation by key jurisdictions. - Beneficial ownership data remains difficult to verify and access. - Establishment of the National AML/CFT Authority improved coordination, but challenges remain in inter-agency coordination, inconsistent sanctioning practices, and limited investigative capacity that constrain effective enforcement and asset recovery. - g. Rule of Law: - Judicial governance weaknesses constrain enforcement of economic rights and increase exposure to corruption risks. - Delays in adjudication occur due to backlogged cases, outdated laws, and judicial inefficiencies. - Multiple and competing courts, including special economic courts / Administrative Tribunals, generate uncertainty in legal interpretation and have had mixed success in expediting case resolution. - Human resource practices for judges (appointment processes and length of tenure) vary and raise questions about judicial independence and integrity. - Mechanisms for overseeing efficiency and ethics of judicial officers need strengthening to improve performance and public trust. - h. Anti-corruption: - Efforts constrained by heavy reliance on a single institution exposed to strong political influence for prosecution of individual corruption cases. - Progress has been made in preventative measures (such as asset declaration systems), but limited use has been made of information to proactively identify high-risk institutions, functions, sectors, and individuals for enhanced scrutiny. ### Expected benefits from reforms - IMF analysis projects Pakistan could generate between a 5 to 6.5 percent increase in GDP by implementing a package of governance reforms over the course of 5 years. - The particular reform package analyzed includes reforms aligned with this report: improvements in governance and anti-corruption, business regulation, and regulation of foreign trade. ### Priority recommendations for action and reforms (selection and timelines) - Addressing governance weaknesses/corruption that constrain private sector development: 1. Improve the performance of the public procurement system by eliminating preferences for State-Owned Enterprises, including provisions allowing for direct contracting and mandating the use of the e-Government Procurement system for all procurement transactions within 12 months. - Responsible Authority: Public Procurement Regulatory Authority - Timeline: MT 2. Enhance transparency regarding strategic investments by producing and making public the first annual report of the Special Investment Facilitation Council, including information on all investments it has facilitated, including concessions provided (tax, policy/regulatory, or legislative) along with detailed rationale of concessions, and the estimated value of the concessions, and publishing the information on the implementation of the BoI (Amendment) Act, Article 10F (Power to relax or exempt from regulatory compliance). - Responsible Authority: Special Investment Facilitation Council - Timeline: MT 3. Under the leadership of the Securities and Exchange Commission of Pakistan, enhance regulatory consistency within 18 months by: (1) establishing a comprehensive database of all federal business regulations, (2) eliminating unnecessary regulations based on structured systematic review; (3) creating a review process based on international good practice for all new regulatory proposals. - Responsible Authority: Securities and Exchange Commission of Pakistan (SECP) - Timeline: MT 4. Increase transparency and enhance efficiency by systematically digitizing the process of complying with regulations. Within 15 months, establish the list of regulatory processes to be digitized, and demonstrate progress in introducing digitized compliance procedures. - Responsible Authority: SECP, Ministry of Information Technology and Telecommunication - Timeline: MT 5. Initiate actions to reduce backlog of economic disputes by developing and publishing the methodology to be used to assess performance of courts and judges reporting to the Ministry of Justice (year 1) and publish the first performance report covering all Administrative Tribunals and Special Courts involved in economic and commercial matters (year 2). - Responsible Authority: Ministry of Law and Justice - Timeline: ST/MT - Addressing governance weaknesses that act as barriers to fulfilling public sector functions: 6. Publish a tax simplification strategy by May 2026 that reduces rate schedules, special regimes, excessive withholding and advance taxes, rationalizes tax exemptions and scales back rulemaking power, and annually report on implementation progress. Demonstrate reduction in the number and value of tax exemptions that have been granted. - Responsible Authority: TPO; Ministry of Finance (MOF) - Timeline: ST/MT 7. Strengthen FBR’s governance and effectiveness by improving its organizational structure to better align oversight and management with achieving core objectives, reduce the autonomy of field offices, enhance human resource practices, and enhance its ability to identify and address key risks. - Responsible Authority: FBR - Timeline: ST/MT 8. Enhance accountability of FBR operations by publishing audit findings relating to PRAL within the next 12 months and produce the initial public report tracking FBR response to major audit findings and recommendations. - Responsible Authority: Auditor General; FBR - Timeline: MT ### Implementation considerations - Recommendations include immediate and short-term measures, as well as structural reforms in the medium- and long-term that will require sustained effort and resources. - Some reforms complement the Government’s on-going reform efforts, such as Central Bank reform, the State-Owned Enterprise Law, cancellation of regulations to improve business environment, and implementation of the National Database and Registration Authority (digital ID and biometric system). - A unifying theme is emphasis on increasing transparency and accountability in policy formulation, implementation, and monitoring, improving access to information, and strengthening capacity of state and non-state stakeholders to participate effectively in governance and economic decision-making. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 9. Improve top-down budget process and avoid in-year budget ### 9. Improve top-down budget process and avoid in-year budget adjustments without getting the Parliament's ex-ante approval through the use of supplementary grants, while maintaining some flexibility in budget execution through introducing contingency reserve. ### Priority recommendations (items 9–15) - Improve top-down budget process and avoid in-year budget adjustments without getting the Parliament's ex-ante approval through the use of supplementary grants, while maintaining some flexibility in budget execution through introducing contingency reserve. - Responsible: Cabinet; Finance Division - Timeline: ST - Enhance PSDP transparency, efficiency and affordability by enforcing the 10% cap on new projects, further rationalizing the portfolio (stock) by retaining only high-priority initiatives, protecting capital spending from mid-year cuts, and integrating Parliamentarians’ projects into the PSDP process. - Responsible: Ministry of Planning Development & Special Initiatives; MOF - Timeline: ST/MT - Adopt and implement a risk-based approach to addressing corruption vulnerabilities in federal agencies by: - (i) publishing an action plan to mitigate risks in the top ten agencies with highest corruption risks and macro-critical exposures based on a centralized assessment using pre-established and public criteria (year 1); and - (ii) reporting annually on implementation progress and risk reduction outcomes in these agencies (year 2). - Responsible: Cabinet Division; Ministry of Law and Justice; NAB - Timeline: MT - Establish full institutional independence of the Auditor General of Pakistan. - Responsible: Cabinet; Finance Division; OAG - Timeline: LT - Enhance investigation and prosecution of money laundering offenses, by removing legal ambiguity on requiring a predicate conviction, increasing quality and quantity of Suspicious Transactions Reports, strengthening law enforcement agencies capacities for financial investigation, and improving cooperation on asset recovery. - Responsible: National AML/CFT Authority; Ministry of Law and Justice; FMU; NAB; Ministry of Interior - Timeline: ST/MT - Strengthen accountability and integrity among high-level federal civil servants by initiating the publication of asset declarations in 2026, and introduce risk-based verification of asset declarations. - Responsible: FBR; Establishment Division; NAB - Timeline: ST - Review and enhance the legal framework governing the appointment of heads of key oversight bodies (CCP, SECP, NAB), to promote merit-based, transparent and credible selection processes. - Responsible: CCP; SECP; NAB - Timeline: ST/MT ### Timing definitions used in recommendations - ST = 6 months or less - MT = 6 to 18 months - LT = 18 months to 36 months ### Contextual findings and governance implications (selected excerpts) - The Governance and Corruption Diagnostic (GCD) is a tool established by the IMF to operationalize the 2018 Framework for Enhanced Engagement on Governance and focuses analysis on governance and corruption issues in six core state functions. - Corruption is defined as the abuse of authority for private gain; corruption can be individual or systemic, and when entrenched can distort or replace formal governance systems. - Corruption is macro-critical in Pakistan and addressing it is essential for the success of the Government’s reform agenda. - The GCD emphasizes combining governance-strengthening initiatives with measures that directly confront corruption and enhance integrity. ### Severity and economic impact highlights - National Accountability Bureau recoveries during the period between January 2023 and December 2024 totaled PRs 5.310 trillion. - Example cited: the PRs 1.240 trillion Economic Stimulus Package for the COVID-19 pandemic. - From 2015 to 2024, Pakistan’s WJP score on control of corruption remained constant (0.38 to 0.39 out of 1.00). - The 2022 World Bank Enterprise Survey reported that 11.1 percent of businesses viewed corruption as the biggest obstacle to doing business, compared with a 7.4 percent average for South Asia. - IMF research cited: every one-point improvement in the Corruption Perceptions Index is associated with a 4 percent increase in the country’s investment rate. ### Implementation principles and expected sequencing - Priority recommendations primarily propose actions that can be initiated and completed in the short to medium term and are often technical in nature to generate change, minimize urgent risks, and lay groundwork for long-term structural reform. - Success depends on broad-based participation by state and non-state actors, public demand for change, active monitoring, and shared responsibility. - The GCD is intended to support the Government to create and publish a Governance Action Plan with specific reform commitments, timelines, and a mechanism for actively monitoring progress. *Source: tarea2025098-source-pdf - 9. Improve top-down budget process and avoid in-year budget* ### 2020. In its audit report of the package, ### tarea2025098-source-pdf - 2020. In its audit report of the package, ### Economic governance distortions and trade performance - Export share of GDP fell from 16 percent in 1990 to 9 percent today. - Widespread protectionism, subsidies, and tax concessions erode the tax base and create opportunities for privileged parties to capture corruption rents. - Export industries suffer from domestic policies that restrict competition to the benefit of politically protected firms. ### Investment climate, judicial credibility, and foreign direct investment - From July 2024 to February 2025, Pakistan attracted $1.618 billion in FDI, marking a 41 percent rise from the $1.147 billion recorded during the same period in the previous fiscal year. - The WGI ranks Pakistan's rule of law in the bottom quartile of countries; Pakistan scores 14.62 (out of 100) in WGI’s Rule of Law index, substantially lower than the average score (32.89) of other lower-middle income countries. - From 2021 to 2023, the judiciary has been consistently identified as one of the three most corrupt sectors in the National Anti-Corruption Perception Survey (others include police and tender and contracting). - Systemic inefficiencies in judicial processes escalate the time and costs of dispute resolution, especially at lower levels of the judiciary, elevating corruption risks and restricting firms’ ability to enforce contracts and property rights. - Weaknesses in regulation and oversight of the financial industry allow critical capital to leave the country. ### Public trust, accountability institutions, and civic participation - In 2023, 68 percent of respondents to a national survey believed that accountability institutions like NAB and the Federal Investigation Agency (FIA) are used for political purposes. - Implementation of the Right to Information Law has largely not succeeded in changing government information practices or establishing an effective means for individuals to request data and participate in monitoring government actions. - Scandals around use of public funds in natural disaster response and the Covid pandemic reveal misuse of public resources for private gain, exacerbating inequality and reducing access to critical services. - Governance of capital investment projects is undermined by corruption in public procurement, preventing infrastructure creation essential for economic expansion. - Limited service provision and inability to hold officials accountable reduce public participation and oversight, resulting in low trust in government. ### Nature and dynamics of corruption - Governance risks arise from the economic role of the state, the scale of regulation, and limited organizational capabilities of key institutions; these are exacerbated by limited transparency and politicized accountability institutions. - Private firms regularly pay bribes for routine business transactions; the World Bank Enterprise Survey reveals that at least 50 percent of firms have paid a bribe across various routine business transactions. - Citizens regularly pay officials for access to services. - Capture of judicial institutions and lack of accountability foster corruption and outflow of capital tied to proceeds of corruption. - Anti-corruption agencies (NAB, FIA, provincial ACEs) are viewed as having poor coordination; some investigations have been criticized as “politically motivated”. - The 2024 Ministry of Law and Justice Anti-Corruption Task Force finds sanctions for corruption susceptible to political influence, leading to selective enforcement and interference. ### State domination of the economy and fiscal governance vulnerabilities - Federal SOEs had a combined output of 12 percent of GDP and combined assets valued at 48 percent of GDP in FY2020. - The banking sector is dominated by credit to the state, accounting for over 60 percent of the total value of bank assets. - Access to financing is heavily tilted towards state-owned entities, with 80 percent of bank lending directed towards the government or SOEs. - Politically connected firms in Pakistan borrow 45 percent more and have a 50 percent higher default rate. - The state employs 72 percent of individuals with formal jobs. - Parliamentary oversight weakened by differences between approved budgets and actual expenditures: the National Assembly approved PRs 9.4 trillion in expenditure overruns in FY2024–25, five times higher than the previous year. - Constituency Development Funds under direct control of legislators skew capital investments and complicate oversight. - The Government estimated tax expenditures at 4.61 percent of GDP in FY 2023, contributing substantially to Pakistan’s low tax-to-GDP ratio. ### Institutional fragmentation, regulatory weaknesses, and competition - Absence of a clear tax policy and weak internal controls grant significant autonomy to tax officials. - Overlapping responsibilities across coordinating bodies (Economic Coordination Committee, SECP, SIFC) limit parliamentary scrutiny and transparency. - Corporate governance, financial reporting, and disclosure standards are widely regarded as weak or poorly enforced; judicial interventions frequently constrain the Competition Commission of Pakistan’s enforcement. - Regulatory authorities often act as both enforcer and adjudicator, insulating them from effective oversight. - Preferential tax and regulatory treatment: agricultural income historically untaxed; real estate, manufacturing, and energy sectors benefit from favorable taxation arrangements. ### Legal exemptions, special arrangements, and SOE governance - Public procurement rules grant preferences to state-owned entities and charities, disrupting competition and increasing corruption risk. - The Special Investment Facilitation Council operates with untested transparency and accountability provisions. - The 2023 State-Owned Enterprise Law aimed to enhance governance and management, but key reforms for effective implementation remain pending; initial creation of a Sovereign Wealth Fund granted special rights, though the Government later indicated intention to apply the same rules to this entity. ### Elite capture, tax expenditures, and sector case studies - A long history of elite control over land and key sectors institutionalized politicization of the state; a 2020 UNDP report estimated "elite privilege" amounted to US$4.7 billion (about US$14 per person in the US) for the corporate sector alone, with another US$1.7 billion. - Example: Cement sector—CCP enquiry found cement manufacturers colluded to increase prices by PRs 45 to PRs 50 per bag, costing consumers PRs 40 billion, despite a 25 percent reduction in the federal excise duty. - Sugar sector case study: - Sugar firms benefited from favorable government policies, subsidies, and regulatory loopholes due to nexus between industry magnates and political leaders. - Government decisions in 2018–19 allowed significant sugar exports, even subsidizing them, creating domestic shortages and price spikes. - An FIA investigation found leading sugar mill owners colluded to create artificial shortages, manipulate prices, engage in speculative hoarding, and launder illicit profits through fake accounts; the inquiry named political heavyweights and confirmed an export push approved by government officials tied to the industry had caused domestic prices to soar. - Accountability has been limited despite revelations; occasional crackdowns have not dismantled the cartel. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 20. The intermingling of political and economic interests has resulted in the development of ### 20. The intermingling of political and economic interests has resulted in the development of ### C. Evolving Dynamics - Dysfunctional institutions susceptible to corruption: when corruption encompasses control over entire markets and the state is captured, policies and laws are designed to benefit specific groups and individuals — termed “state capture.” In such situations, corruption can become the foundation of governance and de jure institutionalize benefits to a limited group, disempowering citizens and concentrating power in a small elite. This constrains Pakistan's economic and social development. - Demographic and technological shifts changing tolerance for corruption: - Over 60 percent of the country’s 247 million population are below the age of 30, increasingly urbanized, and active on social media. - Pakistan recently reached over 200 million telecom subscribers nationwide. - Turnout for 18-to-29-year-olds was 48 percent in 2024, up from 26 percent in 2013; 64 percent of voters in 2024 reported that they voted outside of their kinship group (biraderi); only 16 percent said their vote was primarily based on patronage, an 8 percent drop from 2018. - Young people are less deferential and more skeptical of government institutions; they are increasingly likely to vote and focus on service delivery and access. - Government efforts to address structural drivers of corruption: - In 2023 and 2024, the Federal Government established a committee to reduce its footprint in line with the 18th Constitutional Amendment, focusing on separating policy, operational, and regulatory functions, reducing hierarchical tiers (aiming for three layers), and streamlining attached departments and autonomous bodies. - “Right sizing” the Government aims to reduce the state’s economic and regulatory footprint, which is essential to reducing corruption vulnerabilities. - Digitization and social media impacts: - Digitalization examples with anticorruption potential: - National Database and Registration Authority's digital ID system improved citizens' access to social protection programs, financial inclusion, and reduced misuse of government services. - Pakistan Citizens' Portal (PCP), launched in 2018, allows citizens to lodge complaints and provide feedback on government services. - Digitization of land records is making progress in reducing petty corruption in land management. - e-Pakistan Acquisition and Disposal System (e-PADS) for public procurement launched in 2023 and continues to expand. - A 5-year plan for the digitization of Public Service Delivery is mandated to automate processes for essential public services, minimize discretionary powers, and reduce abuse of authority; includes upgrading AGPR's SAP system and directing the FBR to enforce uniform tax credit adjustments. - Social media (Facebook, WhatsApp, TikTok) has disrupted control over political narratives and supported the rise of issue-based voting focused on service delivery. - Need for deeper, broader reforms: - Progress requires deepening and broadening efforts to address technical and structural root causes of corruption. - Experience from other countries shows governance, integrity, and performance can improve in the short and long term through concerted anti-corruption efforts involving public and private actors. - The remainder of the report identifies key governance weaknesses, proposes concrete improvements, and sketches a transitional pathway to better governance, enhanced trust, and prosperity. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | pages 32–33* ### Section II. Fiscal Governance (Revenue Mobilization and Public Financial Management) - Fiscal governance overview: - This section discusses governance weaknesses linked to elevated corruption risks in policies, practices, and institutions involved in collecting, budgeting, spending, and accounting for public financial resources. - Focus areas: tax policy, tax and customs administration, and public financial management. - Recommendations should be placed in the broader context of improving overall fiscal governance. ### I. Revenue Mobilization - Revenue mobilization context: - Authorities committed to revenue mobilization with a focus on broadening the tax base. - Pakistan’s tax-to-GDP remains stubbornly low at around 10 percent of GDP over the past 5 years. - The current EFF Program includes further proposed tax policy and administration reforms to broaden the tax base and improve revenue collections. - Governance weaknesses hindering revenue mobilization: - Weaknesses in tax policy design and tax administration complexity jeopardize productivity and efficiency and hinder monitoring and deterrence of corruption. - Detailed weaknesses and potential reforms follow in the tax policy subsection. ### B. Tax Policy - Tax policy role and current practice: - Goal: design a tax system that raises revenue efficiently, equitably, and simply; includes policy development, legislative inclusion, and monitoring. - In Pakistan, most tax policy reform is initiated within FBR; proposals also come from the Ministry of Finance and other agencies seeking tax incentives. - Tax policy making has been largely reactionary, responding to short-term revenue needs or sectoral demands. - The policy process is open to undue influence, rent-seeking, and corruption as individuals, firms, or sectors seek preferential treatment in policy development, law inclusion, or implementation. - Complexity of the tax system: - Excessive complexity creates taxpayer uncertainty, invites disputes, enables corruption, and compromises economic efficiency and equity. - Disputes between taxpayers and FBR are difficult to resolve due to law complexity and delayed judicial review; negotiated settlements increase corruption risks and inequities. - Complexity deters businesses and foreign investors. - Ad hoc changes and patchwork taxes: - Ad hoc short-term changes to tax laws often driven by FBR to address collection and compliance weaknesses. - Examples of complicating elements: - Schedular income tax design complicated by additional taxes: minimum taxes on turnover, transaction-based minimum taxes, alternate corporate tax, various withholding and advance taxes, and the small and medium enterprise regime. - These patchwork taxes are often crude approximations of the standard income tax and can cause underpayment or overpayment, potential double taxation, distortions, reduced tax morale, and incentives to understate transactions or negotiate with FBR officers. - One driver: tax policy function effectively sits within FBR. - Use of Statutory Regulatory Orders (SROs): - FBR makes ample use of SROs to establish procedures and, historically, to grant certain exemptions related to import taxes. - SRO issuance by year (Table 2: Pakistan FBR Statutory Regulatory Orders, 2020-2025): - 2020: Income Tax 56; Sales Tax 33; Customs 53; Excises 2; Total 144 - 2021: Income Tax 41; Sales Tax 43; Customs 63; Excises 3; Total 150 - 2022: Income Tax 100; Sales Tax 23; Customs 95; Excises 3; Total 221 - 2023: Income Tax 25; Sales Tax 14; Customs 80; Excises 3; Total 122 - 2024: Income Tax 80; Sales Tax 20; Customs 65; Excises 3; Total 168 - SROs increase complexity and, where used for ad hoc exemptions, create opportunities for rent-seeking, preferential treatment, and corruption. - Auditor-General found customs exemptions granting lacks transparency and some exemptions are outside what is permitted under the law. - Recommendation from prior IMF advice: introduce a tax administration and procedures act to codify and harmonize powers and procedures applicable to all taxes and duties administered by FBR; implement as an opportunity to streamline SROs. - Tax preferences and exemptions: - Range of tax preferences not well monitored and likely abused. - Progress: previous EFF program rationalized tax expenditures with an estimated revenue impact of 1.1 percent of GDP. - Under the current EFF, authorities committed to not introduce new preferential tax treatments and to develop a plan to phase out all Special Economic Zone (SEZ) tax incentives by 2035. - Risk remains for discretionary exemptions by FBR or Cabinet and poor monitoring; Auditor-General flagged lack of monitoring of non-profit organizations entitled to tax credits, many not registered as required. - Lack of harmonization across federal and provincial taxes: - Progress on harmonizing agricultural income tax (provincial), but sales tax remains complicated by Federal tax on goods and provincial taxes on services. - Uncertainty and differences in treatment lead to disputes and negotiated settlements with tax officers, creating corruption opportunities. - National Tax Council working on harmonization with World Bank assistance; progress slow. - Scope exists for harmonization of taxes on immovable property (provincial). - Absence of a coherent medium-term tax strategy: - No coherent 3-to -5 year tax reform strategy to make the system more efficient, equitable, and simpler while increasing revenue. - The Government’s experience with implementing a five-year National Tariff Policy could serve as inspiration. ### C. Recommendations - Establish and operationalize a Tax Policy Office (TPO) in the Ministry of Finance: - Complete establishment of a fully functioning TPO as soon as possible; formation approved by Cabinet; MoF recruiting key management positions. - Once management positions are filled, recruit sufficient skilled staff promptly to make the TPO fully functional; may require moving some staff from FBR (e.g., those doing revenue analysis). - Target: TPO should be close to fully functioning by the end of 2025. - Ensure the TPO is the gatekeeper for tax policy initiatives: - All requests for tax policy reforms, irrespective of source (private sector, FBR, other government departments, politicians) or size/significance, should first come to the TPO for review and recommendation to the Minister of Finance and Cabinet. - TPO should advise on likely impacts on revenue, the economy, the wider tax system, and tax administration (the latter based on advice from FBR). - A well-functioning TPO should provide ‘independent advice’ to the government on tax policy, including consideration of broader macro-fiscal consequences. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | pages 34–37* ### 37. To ensure the TPO’s gatekeeper role, there needs to be a clear separation of the tax policy ### 37. To ensure the TPO’s gatekeeper role, there needs to be a clear separation of the tax policy ### Tax Policy Office (TPO): mandate, separation, and collaboration - Core tax policy functions will be shifted from FBR to the TPO, but some related functions such as legal drafting have not been clearly reassigned. - The tax policy role of the FBR’s International Centre of Technical Excellence (ICTE) is unclear; ICTE may have a role in training and research—in particular on tax administration matters—but it should avoid designing tax policy to avoid fragmentation of the tax policy function. - While the Law and Justice Division of the Ministry of Law and Justice has final responsibility for drafting, the TPO should: - advise on the content of the proposed tax amendments, - review and prepare any documents explaining those amendments, - participate in preparation (while initial drafts remain with FBR). - The TPO should take the lead in setting tax treaty policy and participating in tax treaty negotiations, with input or participation from FBR where tax administration issues are salient. - Avoid form over substance: establishing a TPO on paper must not leave FBR controlling the policy process in practice. - Clear protocols for close collaboration between the TPO and FBR on tax policy design and implementation remain essential. ### Medium-term tax reform and simplification - Develop a medium-term tax reform strategy that includes steps to simplify the tax system: - Strategy coverage: a 3-to -5 year period. - Linkage: strategy should be linked to the broader fiscal framework with clear revenue raising goals. - Include plans to reduce rate schedules, special regimes, excessive withholding and advance taxes, rationalize tax exemptions, and scale back FBR’s rulemaking power. - Include plans for further harmonization of Federal and provincial taxes, with the National Tax Council playing a key role. - Any future changes to the tax law should be consistent with the tax reform plan to prevent ad hoc changes. ### Tax simplification strategy: timing, content, and reporting - The TPO should develop a tax simplification strategy with the goal of publishing the strategy by May 2026. - Strategy elements: - a timetable, preferably covering the medium term, for the various tax reforms, - an annual report on implementation progress. - Development must be in consultation with key stakeholders: affected Federal government agencies, provincial governments and the private sector. ### Rationalization of tax exemptions and Tax Expenditure Statement - Ongoing rationalization of tax exemptions is a key element of the simplification strategy. - Priorities: - continue the process to reduce reliance on tax exemptions and special regimes, - ensure no additional tax exemptions are granted, - remove any discretionary tax exemption powers granted to the FBR. - The authorities produce a Tax Expenditure Statement that estimates the revenue forgone; improvement recommended: - include a cost/benefit assessment of the tax incentives, at least the most significant (e.g., by economic, policy design or political importance). ### Table 3 — Recommendations on Tax Policy (extracted actions) - Complete the establishment of the Tax Policy Office (TPO) ensuring a clear separation of tax policy functions from FBR. - Responsible Authority: Ministry of Finance - Objective: Ensure a well-developed tax policy function separate from FBR - Timeline: ST - Publish a medium-term tax simplification strategy that reduces rates schedules, special regimes, excessive withholding and advance taxes, rationalizes tax exemptions and scales back rule-making power. - Responsible Authority: TPO; Ministry of Finance - Objective: Simplify the tax system reducing complexity and limiting opportunities for corruption - Timeline: MT - Provide an annual report on the implementation of the tax simplification strategy. - Responsible Authority: Ministry of Finance - Objective: Ensure that the proposed strategy is being implemented - Timeline: ST (ongoing annually) - Expand the coverage of the annual Tax Expenditure Statement to include assessment of the costs and benefits of the most significant tax expenditures. - Responsible Authority: Ministry of Finance - Objective: Improve the transparency of the tax system and enable evaluation of tax expenditures - Timeline: ST (ongoing annually) ### Revenue administration: vision and governance weaknesses - Modern revenue administration characteristics emphasized: - efficient, transparent, taxpayer-centric, leveraging technology and data, - robust digital infrastructure, advanced data analytics, real-time information sharing, - strong legal frameworks protecting taxpayer rights, taxpayer education, responsive service delivery, simplified procedures, - continuous innovation, staff training, international cooperation, and integrity to prevent corruption. - Key governance weaknesses analyzed across organizational design, accountability and transparency, human resource and internal affairs, risk culture, and tax and customs operations. ### Operational context and tax gap - Pakistan’s operating environment challenges for FBR: - a narrow and underperforming tax base requiring expansion through better oversight, formalization of the informal economy, and improved taxpayer registration and compliance; - significant vulnerabilities in accountability and transparency, including limited internal controls and internal audit with no structural follow up on findings; absence of IT system audits and need to strengthen oversight over Pakistan Revenue Automation Limited (PRAL); - absence of an effective internal affairs function and comprehensive oversight of reported corruption cases; criminal prosecution of corruption cases is de facto absent; - absence of a strong risk culture: focus on short-term revenue collection, limited effort in raising awareness of risks and ethical behavior, no independent risk committee, and no comprehensive risk register. - The amount of lost revenues: - The FBR estimates in its 2024 tax gap report a total tax gap of PRs 3.4 trillion, approximately 3.9 percent of GDP. - Note: The estimated tax gap is based on information from a newspaper article. The tax gap report was not shared with the mission team. ### FBR mandate, reform progress, and provincial coordination - FBR administers federal taxes, excises and customs duties under the Ministry of Finance, established under the Federal Board of Revenue Act, 2007. - Taxes administered include Personal and Corporate Income tax, Goods and Sales Tax (GST) on goods, and 88 categories of Withholding Taxes. (GST on services is collected by Pakistan’s provincial tax authorities.) - Recent FBR measures to enhance compliance: faceless valuation and assessment in customs, e-invoicing, e-payment, Point of Sales systems, video monitoring in sectors prone to tax evasion, rollout of Compliance Risk Management (CRM) in Large Taxpayer Units (LTUs), increased control of fake invoices in GST. - Transformation plan introduced in 2024 aims to expand Track and Trace systems, reform Appellate Tribunal Inland Revenue (ATIR), and integrate customs, regulatory authorities, banks, and logistics providers for Pakistan Single Window (PSW); effectiveness depends on embedding measures in FBR operations and adequate staff training. - Provincial tax authorities: each province has a Revenue Authority and a Revenue Board responsible for provincial taxes and excises, including Agricultural Income Tax (AIT) and GST on services. MoUs exist to facilitate information exchange with FBR but are often perceived ineffective due to data incompatibilities, taxpayer allocation issues, and limited willingness to cooperate. - The National Tax Council exists and is functioning well at a strategic level, but its impact on operational activities remains limited. ### Organizational design and oversight issues - FBR governance: - Overseen by an executive board of 11 members who report to the chairman. - Headquarters strengthened by cross-cutting Directorate Generals (DGs) such as DGs Intelligence and Investigation (I&I) Customs and Inland Revenue, and DG Broadening the tax base. - A Policy Board comprising national assembly and senate members serves as an advisory board. - No formal executive committees with oversight of specific strategic areas such as Internal Audit or Compliance Risk Management. - Field operations: - HQ oversees daily operations of over 30 tax and customs field offices. - Field offices report to Member Operations Inland Revenue, and Member Operations Customs. - Field offices possess substantial autonomy in taxpayer-level decision-making, creating operational risks without strong HQ monitoring and accountability mechanisms. - Fragmented setup encourages siloed decision-making and inconsistent enforcement, weakening institutional credibility and revenue sustainability. - Reporting bias: - Reporting arrangements are predominantly focused on revenue collection; this narrow focus can mask underlying performance weaknesses (e.g., failing to process GST or Income Tax refunds). ### Accountability and transparency: control mechanisms and shortcomings - Four interrelated governance and control mechanisms: - Self-Control: individual regulation of actions aligned with organizational ethics. - Internal Control: processes and systems ensuring integrity of reporting and compliance. - Internal Audit: independent function evaluating risk management, control, and governance, reporting directly to the leader of the revenue administration. - External Audit: independent audits (e.g., Auditor-General) to evaluate financial statements and compliance. - FBR arrangements: - Dedicated departments: Directorate General of Internal Audit Inland Revenue (DGIAIR) and Directorate General of Internal Audit Customs (DGIAC), reporting to the Member Operational Audit; responsible for inspections, internal audit, and internal audit of expenditures. - Shortcomings: - Internal control and internal audit systems remain insufficient; DGIAIR and DGIAC focus on quality assurance and internal control rather than true internal audit. - 2023-24 Annual Report provides activity counts and identified revenue leakages but lacks evaluation of internal processes and actionable recommendations. - Special inspection reports identify high-risk areas but lack root-cause analysis and actionable recommendations to prevent recurrence. - External audit (Auditor-General of Pakistan, AG): - AG’s financial (regularity) audits and impact/thematic audits assess FBR operations; the AG has expressed concerns about FBR’s internal audit, internal controls, and follow-up actions. - AG 2023-24 audit report findings include: - FBR’s weak internal controls for monitoring tax evasion and collection. - Thematic audits identifying serious concerns related to fairness, accountability, and non-monitoring of critical transactions. - FBR’s compliance with Standing Committee on Public Accounts (PAC) directives was only 4.7 percent over the last five years. - The AG has not conducted Information Systems Audits (ISAs) on FBR’s IT systems despite the mandate; no ISAs performed because AG reported FBR did not grant access to taxpayer data (which the AG noted is not needed to undertake an ISA). - Concern: FBR classifies taxpayer data as critical infrastructure under PECA 2016, making external assurance on data security critical. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 57. Pakistan Revenue Automation LTD (PRAL) is a critical entity responsible for managing the ### 57. Pakistan Revenue Automation LTD (PRAL) is a critical entity responsible for managing the IT infrastructure of the FBR ### PRAL role and institutional status - PRAL was established to support the modernization and automation of the tax administration system in Pakistan. - Serves as the technology arm of FBR, handling taxpayers' data and facilitating compliance with tax laws. - Manages FBR’s IT and data infrastructure and contributes to improving FBR’s performance and revenue mobilization. - Provides IT services to the four provincial tax authorities. - Serves as a key link with users of taxpayer data, including the Directorate General of Immigration and Passports and the Small and Medium Enterprises Development Authority. - Operates independently under the SOE Act with an autonomous board (FBR holding one seat). - SOE status permits PRAL to recruit qualified staff at market-competitive salaries or hire third parties for outsourcing specific activities. ### Current oversight, controls, and governance weaknesses at PRAL - Lacks a systematic overview of potential data management and security risks; does not maintain a risk register. - Transaction logs are reviewed only after a reported incident, not proactively to identify risks. - A code of conduct and conflict of interest policy, though legally required, have not been developed. - Internal audit department’s mandate does not include independent reviews of technical systems. - Auditor General (AG) is not permitted to conduct ISAs, despite many FBR systems being home-grown and often lacking proper documentation and vulnerability checks (e.g., potential backdoors). - A new data governance policy has been approved; PRAL expects it to address many current challenges (note: the data governance policy has not been shared with the mission team). ### Risks from outsourcing and staffing practices - Recruitment at competitive salaries and use of third parties to outsource core functions heighten the need for conflict of interest and conduct controls. - Abuse of userIDs by FBR staff was reported as a serious concern. - Outsourcing of audit and monitoring functions can weaken control unless independent, tamper-resistant logging and audit consolidation are deployed by the tax administration. ### Recommended oversight and assurance actions for FBR over PRAL - Ensure continuous assurance that PRAL operates within its mandate and complies with all FBR requirements. - Be actively informed on critical matters, including PRAL’s interactions with provincial tax authorities and data sharing with third parties. - Pay special attention to PRAL’s role in revenue mobilization, including analysis and enrichment of e-invoices that may breach separation of duties. - Recognize taxpayer data as critical infrastructure under PECA 2016 and require robust data security protocols. - Require PRAL to: - Implement active monitoring systems. - Maintain a comprehensive risk register. - Submit regular assurance reports. - Prioritize establishment of an internal audit department within PRAL to continuously evaluate and strengthen data security measures. - Consider deploying an independent audit and monitoring system that collects and consolidates audit logs from all critical components (databases, operating systems, applications) into a secure, tamper-resistant repository controlled by the tax administration to provide real-time visibility and forensic capability. *Italic: IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | excerpt* ### E. Human Resources and Internal Affairs — Human Resources: key findings - Absence of an HR strategy undermines governance and anti-corruption arrangements; an HR strategy is crucial to ensure right policies and practices for ethical, efficient workforce management. - FBR’s HR function is mainly operations driven; Member HR ensures consistency of HR rules and engages informally with field offices; no formal reporting arrangements or internal control mechanisms to verify data accuracy. - High turnover among senior management: - No chairman has completed a full term since 1988. - Since 2013, the average tenure for chairmen has been just 8.8 months. - Rapid turnover undermines building a management culture, implementing policy improvements, and accountability. ### Performance Management Scheme (PMS) - PMS launched in April 2025 for senior staff (grades B17 and above). - Integrity parameter weight: 60 percent, based on anonymized peer ratings with forced ranking by 45 peers. - Performance parameter evaluated by experts using objective criteria in an anonymized manner. - Bonus structure: - Highest scoring 20 percent (category A): four additional monthly salaries. - Next 20 percent (category B): three-monthly salaries. - Continues in quintiles to lowest 20 percent (category E): no bonus. - PMS is a substantial improvement over earlier system (which had an outstanding rating of 98 percent). - The P Minister has decided to extend the PMS to other civil service groups. - PMS is being used for promotions, transfers, postings, trainings, and career planning. - Limitations: PMS supports integrity but does not address all root causes; needs accompanying oversight, an HR strategy, updated code of conduct, formal training, and research on impacts for staff below grade B17 and behavioral responses of categories C, D, and E. ### Internal Affairs: key findings and gaps - FBR widely perceived as having serious corruption issues; chairman acknowledges corruption is endemic. - Steps taken include PMS, rotation of officers, and accounting for integrity in promotions/postings, but major gaps remain. - Code of conduct has not been updated since 2015; no structured plan for awareness or training. - No internal affairs unit exists to formulate integrity/ethics policy, investigate misconduct, or coordinate with enforcement agencies; such units typically report directly to head or deputy head of revenue administrations. - Complaints handling is fragmented: - Complaints can be submitted to multiple internal FBR entities (IMC, RIC, Member Inland Revenue Operations, Chairman, I&I IR, I&I C) and external bodies (Federal Tax Ombudsman, FIA, NAB, Pakistan Citizen Portal). - FBR published IMC filing procedure and contact information, but there is no guidance on which avenue to use, no consolidation of complaints, and no periodic reporting to the chairman. - FBR annual report for 2023-24 indicates 46 disciplinary actions for Inland Revenue and 107 for Customs; FBR could not provide breakdowns of corruption-related cases or reconcile total complaints. - Investigative and sanction framework is fragmented and ambiguous: - IMC and RIC use Civil Servants Efficiency and Discipline Rules 2020 for disciplinary actions; powers limited to interviews and asset declaration checks; penalties range from minor to dismissal but do not include criminal prosecution proposals. - I&I IR and I&I C derive investigative powers from the FBR Act and can propose follow-up via IMC or suggest criminal prosecution by FIA, with no clear procedure for choosing avenues. - Proposals for disciplinary proceedings of senior staff require approvals: chairman (for staff above B17) or Prime Minister (for staff above B20). - Criminal prosecution is legally possible but occurs only occasionally; FBR could not provide data on number of criminal prosecutions in recent years. ### F. Risk Culture — findings and implications - FBR lacks a strong risk culture: no risk committee; DGIAIR and DGIAC report to an FBR member rather than chairman; absence of risk register for operational and human capital risks; absence of internal controls over FBR’s HQ expenses; failures to maintain minimum separation of duties. - Example vulnerabilities: - AG concluded irregular expenditure amounting to PRs 579 million due to non-observance of Public Procurement Rules. - Examples of inadequate separation of duties include involvement in tax audit and debt collection by one officer, or approval and processing of GST refunds by same individual. - A strong risk culture is essential to reduce corruption risks and increase revenue collection; requires risk-aware environment, proactive identification/mitigation, robust internal controls, and transparency. - Case example: response to a possible AI IT breach of the Customs Clearance System was led by Director General of Post Clearance Audit rather than an independent entity (e.g., AG or qualified forensic audit firm), demonstrating inappropriate assignment and limited management response. ### G. Tax and Customs Operations — Inland Revenue: key findings and statistics - Weak revenue collection is compounded by low tax compliance culture and constrained administrative capacity. - Tax legal framework is intricate with multiple institutions at federal and provincial levels, hindering taxpayer compliance; tax morale is very low. - CRM implementation: - Modern CRM dashboard launched in January 2025 provides insights on anomalies (compliance risks, region, industry, company size) and enables identification of high-risk cases. - CRM currently covers accurate reporting only, isolated from registration, filing, and payment pillars. - CRM findings are not mandatory for field offices; result: only 13.7 percent of audits in 2023-24 were risk-based. - CRM needs: improved environmental scanning, tailored risk register for targeted groups (e.g., the tobacco industry, SOEs, Economic Free Zones, extractive industry) or transactions (e.g., tax exemptions), and systematic analysis of audit findings. - Taxpayer registration and returns: - FBR reports 5 million registered taxpayers; FBR believes this reflects the taxpayer population using macroeconomic income distribution data. - External reports suggest potential tax base of 15 million, indicating FBR may be underestimating registration issues. - Of 5.9 million tax returns received, 43 percent declared zero income, indicating significant under-declaration or non-real taxpayers. - Audit and management information: - Detailed audit results are not integrated into FBR’s management information system, hindering timely identification of poor performance or corruption risks (including SOEs, tax exemptions, economic free zone companies). - Refunds administration: - Administration of GST and Income Tax refunds is vulnerable to rent-seeking due to weaknesses in governance, transparency, and internal controls. - Field offices have dedicated refund teams instructed to use first-in-first-out processing. - Reporting to chief revenue operations limited to number of processed cases; lacks detail necessary to analyze potential rent-seeking behavior. - Tax appeals system: - High volume of pending cases, concerns about Tax Tribunal independence, capacity constraints. - FBR’s routine appeals against decisions further burden dispute resolution. - Reforms underway: Supreme Court strategy to establish specialized tax benches, promote alternative dispute resolution (ADR), legislative amendments to enhance transparency and merit-based appointments. - Implementation gaps: ADR underutilized due to limited taxpayer confidence and ambiguous norms; legislative amendments not yet operationalized; no metrics proposed to evaluate long-term effectiveness. - Reforms needed: streamline appellate system, appoint skilled personnel, improve procedural efficiency, regularly publish performance data to promote accountability and transparency. *Italic: IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | excerpt* ### 80. Pakistan's customs operations are digitized, however, there are no structured routine ### Pakistan's customs operations are digitized, however, there are no structured routine ### Customs digitization, transaction logging, and internal controls - Scope of digitization: goods clearance at importation, cargo management, transit, special regimes management, and reconciliation between different stages of cargo processing. - System capability: records all transactions per officer, including their user ID and timestamp. - FBR actions: working on strengthening internal control mechanisms, such as routine analyses conducted to assess assignments and routing fairly, which could further mitigate corruption risks. - Current gap: no structured routine analyses are conducted to mitigate corruption risks. ### Risk-based selectivity and control channel composition - FBR follows international good practices in risk-based selectivity during the import clearance process. - All decisions are logged and recorded under the staff member’s user ID and timestamp. - Composition of control channels: Green 56-60 percent, Yellow 20 percent, and Red 15-20 percent. - Override rules: Customs staff and management cannot override allocations to the yellow and red channels but can inspect green channel goods based on specific information. - Audit trail gap: there is no audit trail for inspections of green channel goods, posing a risk for rent-seeking behavior. ### Export regulatory conformity and vulnerabilities - Export conformity assessment: done through WeBOC selectivity. - Physical confirmation gap: physical confirmation that exported goods actually leave the country has room for improvement. - Identified risk: cases where cargo exits the country on paper while being diverted into the domestic market. - Fiscal and integrity implications: - Exports are not the primary focus for customs administration since they do not generate customs revenue, but they can significantly affect Inland Revenue taxes, including indirect tax (export GST refunds) and direct tax (under-reported corporate income through lower-value exports). - Government expenditures such as export-linked subsidies and credits can be impacted. - Trade-based money laundering and profit shifting can also involve exports, underscoring the need for effective export management and reducing corruption vulnerabilities. ### Mobile teams: monitoring, recording, and corruption exposure - Since 2023, customs mobile teams are required to register electronically when they stop a truck, and all actions are remotely recorded. - Complaint response: if a complaint arises, the FBR can review the record. - Analytical gap: FBR does not analyze the activities of its mobile teams to identify potential corruption issues. - Mobile phone policy inconsistency: - Private mobile phones are not allowed in the customs officer workspace. - Mobile team staff are permitted to carry private mobile phones without registration and monitoring after the operation. - Risk evidence: reports from other countries indicate mobile team staff sometimes inform fraudsters of their location, allowing them to evade control. ### Recommendations on Revenue Administration (selected actions and objectives) - 1. Strengthen FBR’s HQ function: establish executive committees, strengthen risk management, reduce the autonomy of field offices, and ensure performance is systematically monitored and managed. - Responsible Authority: FBR - Objective: Enhancing control over corruption, Improving tax compliance and operation’s efficiency - Timeline: MT - 2. Strengthen the FBR’s internal control and audit framework by establishing a truly independent internal audit function with a clear mandate to evaluate processes and governance systems. - Responsible Authority: FBR - Objective: Improved governance and transparency of FBR’s operations - Timeline: ST - 3. Undertake an independent IT system’s audit. - Responsible Authority: AG - Objective: Assurance on data security and integrity - Timeline: ST - 4. Strengthen FBR’s oversight of PRAL by establishing a robust risk management framework with real-time monitoring, a risk register, regular assurance reporting, and an internal audit function to ensure secure, accountable operations aligned with legal obligations and data protection standards. - Responsible Authority: FBR / PRAL - Objective: Meeting requirements on data security and integrity, optimization of using IT solutions - Timeline: ST - 5. Establish an Internal Affairs Unit within the FBR, receiving all complaints, reporting directly to the Chairman, with a formal mandate to develop and enforce integrity and anti-corruption policies, investigate misconduct at all staff levels, and coordinate with relevant enforcement bodies as needed. - Responsible Authority: FBR - Objective: Prevention and effective addressing of corruption - Timeline: MT - 6. Publish data on complaints, number of officials investigated for corruption, number of individuals sanctioned for corruption, number of cases passed to other enforcement agencies. - Responsible Authority: FBR - Objective: Transparency - Timeline: MT - 7. Strengthen FBR’s risk culture including by establishing an independent risk committee and the development of a comprehensive risk register. - Responsible Authority: FBR - Objective: Strengthen control - Timeline: ST (ongoing) - 8. Strengthen FBR’s core functions, including CRM, registration, filing, audit, refunds, customs selection and export management. - Responsible Authority: FBR - Objective: Improved core functions - Timeline: MT *Source: IMF Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 95. Under the EFF, the authorities have committed to managing required in-year budget ### 95. Under the EFF, the authorities have committed to managing required in-year budget adjustments by using contingency reserve allocated under the FS budget and through technical grants ### In-year budget adjustments and contingency arrangements - Authorities have used contingency reserve allocated under the FS budget and technical grants to manage required in-year budget adjustments. No supplementary grant has been used. - The legal framework does not specify the level or intended beneficiaries of the contingency reserve under the federal budget and does not provide a separate framework for managing contingencies outside the existing mechanisms for supplementary and technical grants. - Lack of structural changes means greater clarity is needed in procedures and transparency regarding in-year budget adjustments. - Recommendation: Establish a robust framework for implementing strong in-year budget adjustments during budget execution to: - respond more effectively to revenue shortfalls, expenditure pressures, or macroeconomic shocks; - maintain fiscal discipline and avoid the accumulation of arrears or unplanned borrowing; - prevent rigid budget structures from hindering timely policy responses and undermining the credibility of fiscal targets. - Institutionalize clear procedures and accountability mechanisms for in-year budget adjustments through carefully designed contingency reserve and supplementary budget arrangements to sustain gains achieved under the EFF and ensure continued fiscal resilience. ### Weak budget controls and lack of commitment controls - Several stages of the expenditure process are carried out manually and are not presently captured in the Financial Accounting and Budgeting System (FABS), presenting governance vulnerabilities in budget execution. - Despite reforms, budget processes still involve significant manual and paper-based steps; FABS will still not capture all information on budget execution as international good practice recommends. - Objective of commitment control: manage the initial incurrence of financial obligations to ensure governments do not commit to expenditures that exceed available resources before payment. - In FABS, expenditures are only captured at the Payment Order Stage by the Ministries, Departments and Agencies (MDAs), despite PFMA (section 26) and Finance Division guidelines for annual and multiyear commitments. - Although Commitment Control Guidelines (2022) and Budget Wing Implementation of Rules (para 51) require registry of purchase orders, commitments are only registered in FABS when the approved Payment Voucher (Payment Order) is presented to the Controller General of Accounts. - Consequence: multiple procurement activities may occur on a single budget line; registration delay makes it too late to control spending effectively. - Neither annual nor multiyear commitments are recorded in FABS in accordance with Accounting Policies and Procedures Manual (1999) or Guidelines for Commitment Control (2022). - Problems exacerbated by current cash management practices: Budget Wing decides budget releases based on cash availability; pressing need for improvement in cash forecasting to make budget releases credible. ### Public Investment Management — corruption vulnerabilities - Public investment management is highly vulnerable to corruption risk due to: - projects cutting across several institutions, jurisdictions, levels of government, and policy areas; - local influence on land use and access to services creating opportunities for rent extraction; - high likelihood of variations during construction making corruption harder to spot. - Corruption risks in infrastructure are closely linked to government contracting and procurement weaknesses. ### Main weaknesses and vulnerabilities in public investment management - Absence of formal arrangements to protect funding for approved projects and overhang of ongoing projects presents a risk of corrupt practices to favor certain projects for limited resources. - 2023 PIMA and Climate PIMA report: total cost to complete projects in PSDP is PRs 10.7 trillion, more than 14 times the budget allocation of PRs 727 billion in 2022-23. - There are currently around 1,100 projects in the plan. - Federal PSDP is an annual document listing projects and programs with specific expenditure allocations for the fiscal year. - FY2024-25: total PSDP for federal government amounts to PRs 1,400 billion (7 percent of total federal government expenditure) while total federal government expenditure is PRs 18,877 billion. - Government actions: - 2024 PSDP review removed 152 projects from approximately 1,100 projects. - Included a limit on size of allocation for new projects. - NEC guidelines (on recommendations of Ministry of Planning, Development and Special Initiatives): "Only 10% of allocated development budget FY2024-25 should be considered for allocation to new projects, with particular focus on supporting exports, enhancing productivity, fostering competitiveness, deepening and spreading digital infrastructure, innovation driven enterprises, industrial development, agroindustry and seed development, blue economy, science & technology, R&D and innovation reforms". - Purpose of limit: reduce consequences of capital investments on future budgets and focus on completion of on-going, core and foreign funded projects; recognize negative impact of insufficient funding or delayed provision of funds for approved projects. The limit will continue till revision. Budget Call Circular for FY 2025-26 PSDP contains the same limit. - Project appraisal improvements underway: - development of a multi-criteria scoring tool to enhance rigor of project appraisal and filter PC-I submissions; - Implementation & Monitoring Wing, Pakistan Planning and Management Institute (PPMI), and academic partners rolling out appraisal training programs and standardized scorecards. - Politically driven projects and SAP: - PSDP often prioritizes politically driven projects undergoing less strict appraisal, selection, costing processes, increasing corruption risk. - Sustainable Development Goals Achievement Programme (SAP) is approved through a distinct, politically driven, decentralized mechanism overseen by a Ministerial Steering Committee including federal ministers, members of the National Assembly, and senior bureaucrats. - SAP schemes range from PRs 0.25 million to PRs 50.0 million; Gas Sector Scheme upper limit up to PRs 300 million. At least 10 residents of area required to request scheme; requests forwarded to concerned Deputy Commissioners/federal executing agencies for processing and approval. - Auditor General of Pakistan special audit highlighted issues such as unauthorized payments, violation of procurement rules, fund transfers without approval. - Budget is released for SAP projects in July at fiscal year start while release of cash for other projects depends on cash availability. - Budget allocation to the SAP program under the Cabinet Division was increased to PRs75 billion (5 percent of total federal government PSDP) in the 2024-25 budget. ### Multi-year budgeting, project pipeline, and recurrent cost estimation - No multi-year ceiling set at ministries or sector levels for public investment in BSP, resulting in uncertainties for line ministries. - Finance Division sets multi-year indicative budget ceilings for line ministries limited to the current budget. - Planning Commission sets only annual ceilings for the PSDP for line ministries. - Medium-term budget strategy paper includes three-year projections for PSDP across four broad categories but not by ministry or sector; thus projections do not constitute multi-year ceilings. - Consequences: - Line ministries lack visibility over future capital budget resources, limiting capacity to plan medium- and long-term projects. - Line ministries prepare and submit PC-1 forms to initiate new projects, increasing number of projects in PSDP. - Absence of multi-year ceilings may drive high value of new projects relative to available fiscal space. - Example of cost escalation: Golen Gol Hydropower Project initial estimate PRs 7 billion ballooned to PRs 30 billion by completion. - Evidence that larger projects are more prone to corruption given scale of cost overrun and complexity of contracts and stakeholders. - Dual budgeting inefficiencies: - Finance Division prepares current budget; Planning Commission prepares development budget—creating gaps in oversight and cost estimation. - Recurrent costs related to capital projects often not taken into account until projects are in operation. - Relevance for PPPs where long-term fiscal commitments (viability gap funding, guarantees, annuity payments) are often not fully integrated into medium-term frameworks. - P3A collaboration with Risk Management Unit (RMU) at Finance Division and 2024 Fiscal Commitments and Contingent Liabilities (FCCL) Guidelines aim to assess and mitigate fiscal risks, integrating commitments into medium-term forecasts. - Advanced financial modelling tools started to project fiscal impact of PPP projects over lifecycle. - Fiscal Risk Statement published in March 2025 included a section on fiscal risks from PPPs and indicated plans to enhance PPP framework by improving legal structures for project selection, procurement, and risk allocation. ### PPP governance risks and institutional arrangements - PPPs exposed to corruption risks due to complex contracts, long-term nature, and varied risk-transfer mechanisms. - PPPs are not "free" to the budget; potential PPP obligations should be understood upfront and liabilities monitored and managed throughout execution. - Key challenges in Pakistan: - diverse and separate legal and institutional frameworks for PPPs across federal and provincial levels; - politically motivated project selection; - non-transparent procurement and contracting; - inadequate risk-sharing in PPPs. - Federal PPP framework documents include: Public Private Partnership Act 2017; Federal PPP Policy 2023–2028; P3A Project Development Manual; Project Approval and Process Flow Regulation 2021; Fiscal Commitment and Contingent Liability (FCCL) Guidelines. - Separate frameworks exist in the energy sector and other traditional infrastructure sectors across federal and provincial levels. - Public-Private Partnership Authority (P3A) permits unsolicited proposals at the federal level; unsolicited proposals must undergo evaluation but can pose governance risks if not managed transparently. - Absence of a centralized monitoring mechanism increases risk of irregularities in project selection, procurement, and implementation in PPPs, particularly at the provincial level where PPP units may lack capacity or independence. - Recommended measures: - implement e-procurement systems to ensure open, competitive bidding and reduce collusion or bid rigging; - utilize standardized contract templates with clear risk-sharing mechanisms and performance benchmarks; - strengthen centralized monitoring and capacity of provincial PPP units to enforce transparency and accountability standards. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 112. PPPs is also a mechanism for attracting foreign investment into the Special Investment ### PPPs is also a mechanism for attracting foreign investment into the Special Investment Facilitation Council (SIFC) identified priority sectors ### SIFC establishment, mandate, and legal powers - The SIFC was established in 2023 with the goal of acting as a "'single window” to facilitate investment and privatization, and establish cooperation among all Government departments, and fast-track project development. - The SIFC has been assigned the task of increasing Foreign Direct Investment and identified priority sectors: Agriculture, defense, infrastructure development, strategic initiatives, logistics, minerals, IT, telecommunication, energy, mining and minerals, tourism. - The Board of Investment (Amendment) Act, 2023 introduced significant provisions: - Article 10E: Power to issue directions to the Federal Government. - Article 10F: Power to relax or exempt from regulatory compliance. - Article 10G: Immunity. - Concerns raised: - Concentration of authority over federal and regulatory institutions through recommendations, advice and directions, including on exemptions given the broad immunity under Article 10G, which may undermine accountability mechanisms. - The impact of these provisions on decision-making in Public Investment Management (PIM) and Public-Private Partnerships (PPPs) remains insufficiently clarified in official documentation. - The provisions in Articles 10F and 10G appear to create a framework that prioritizes facilitation of strategic projects by allowing exemptions from regulatory compliance and shielding officials from personal liability, increasing potential transactional risks. - Recommendation / governance need: - Given SIFC’s broad and disparate organizational functions and authority, it is essential for SIFC to develop explicit protocols for undertaking its activities and enhanced transparency arrangements to enable effective oversight and accountability. - Institutional overlap: - The SIFC was established through the amendment to accelerate investment and privatization efforts, while the Board of Investment (BOI) continues to exist, creating ambiguity regarding roles, responsibilities, and accountability structures. - Authorities are advised to prioritize addressing structural challenges and root causes that deter foreign direct investment, weaken the investment climate, and hinder privatization efforts, and to create a more coherent institutional framework supported by robust governance and accountability. ### Public Procurement — role, risks, and systemic weaknesses - General observations: - Public procurement is often identified as the government function most prone to corrupt practices due to technical/discretionary nature and large monetary scale. - Corruption vulnerabilities exist from determining what to purchase, who to purchase from, and the cost, quality, and timing of delivery and payment. - When well-functioning, public procurement encourages competition, enables new firms to grow, can result in cost savings to government, stimulate private sector development, and ensure value for money. - Pakistan context and scale: - In Pakistan, spending on public procurement accounts for a substantial portion of the federal budget and is especially prominent in spending related to public investment. - The absence of comprehensive information on procurement transactions prevents quantification of costs of current practices, but potential for cost savings and improved economic impact is enormous given the scale of spending. - Legal and regulatory framework: - Operative legislation: “Public Procurement Regulatory Authority Ordinance, 2020” (July 7, 2020). - Public Procurement Rules 2004: - Rule 20 prescribes open competition as the principal method of procurement. - Rule 4 mandates consideration for transparency. - Rule 35 requires procuring agencies to publish the final evaluation report fifteen days prior to award of the contract. - Rule 48 provides an independent complaint review forum; decision of the Public Procurement Regulatory Authority on such complaints is final under the Rules. - The overall procurement framework does not require a mandatory mechanism for monitoring procurement or establishing a comprehensive procurement database. - Main weaknesses and vulnerabilities: - Amendments at the federal level and in Punjab have undermined core principles of open competition by providing for award of contracts to SOEs without competition when projects are considered time sensitive and in the public interest. - Section 17 of the SOE Act 2023 grants SOEs authority to establish separate procurement practices, weakening regulatory consistency. - It is not possible to quantify the number and value of contracts directly negotiated with state owned firms; anecdotal reports highlight high value contracts assigned in this fashion and a tendency for contractual costs to exceed expectations. - Extensive practice of sub-contracting to private firms in opaque and unmonitored transactions increases corruption vulnerabilities. - E-procurement and EPADS: - The federal government in February 2023 mandated the use of the Government e-Government Procurement System (EPADS) for all public procurement. - Despite the mandate, certain public sector entities (e.g. NHA, CDA, WAPDA) and sectors related to infrastructure and development works continue to use their own distinct systems. - Full utilization of EPADS is essential; maintenance of alternative systems or reliance on manual-based systems undermines procedural consistency and monitoring, increasing opportunities for corruption and decreasing the ability to detect transgressions. - Provincial notes: Balochistan has used its own e-procurement system since March 2022; Punjab adopted the federal e-procurement system and expanded its use since March 2024; Sindh and KPK have started/inaugurated use of the e-procurement system. - Transparency, data, and oversight gaps: - Effective systems should publicize procurement opportunities and actively monitor transactions and outcomes; information standards like Open Contracting guide what and how information is provided. - The Public Procurement Regulatory Authority (PPRA) prescribes regulations and oversees publication of contract opportunities and awards; almost all procurement opportunities (over PRs 3 million) are advertised publicly in a newspaper of wide circulation and on the PPRA website, with award information disclosed prior to award. - As of now, there is no structured procurement database with analytical capability or machine-readable data; procurement information is fragmented across advertisements, evaluation reports, e-procurement disclosures, and Auditor General reports. - Information gaps hinder accountability frameworks; procurements for all public investments are annually reviewed by the Auditor General of Pakistan. - Procuring entities regularly submit information about procurement process and contracts valued over PRs 50 million each under Section 33-B of National Accountability Ordinance to the National Accountability Bureau (NAB). - Accountability and enforcement shortcomings: - Majority of audits by AGP are compliance audits; performance-based audits are more suited for public procurement but require advanced skills and human resources that may be beyond current AGP competencies. - Huge backlog of pending audit paras before the Public Accounts Committee compromises effectiveness of audit findings. - NAB does not analyze procurement transaction information to proactively identify corruption and fraud risks, relying largely on complaints to initiate investigations. - Protocols for information sharing across PPRA, Auditor General, NAB, and FIA exist but are rarely used; enhancing timely flow of information among these bodies is an important first step to improve accountability. - Grievance redressal and complaint handling: - Federal and provincial procurement rules include provisions for grievance redressal and review by PPRA; the average time to resolve complaints is between two to six months at the federal level. - Decisions on procurement complaints are not published and a significant fee applies for appeal to the authority, reducing effectiveness. - While the decision on procurement complaints by the PPRA is final, it is not rigorously enforced; PPRA issues recommendations with limited follow-up. - No data is available on the number of complaints pursued in court after PPRA review or on the percentage of decisions reversed if pursued in court. - The fee requirement for PPRA appeals deters complainants and compromises overall complaint mechanism effectiveness. ### Asset and Liability Management — Cash Management and TSA implementation - Importance: - Governance weaknesses increase in the absence of a Treasury Single Account (TSA) and adequate cash forecasting. - TSA improves financial discipline, transparency, and accountability; cash forecasting helps estimate future cash flows and balances to avoid cash shortages and address MDAs' cash needs. - Existence of too many government bank accounts outside CAGD or treasury oversight, and cash rationing without procedural clarity, transparency, and oversight, are governance vulnerabilities closely associated with increased risk of corruption. - Reform status and legal basis: - The Public Financial Management Act (PFMA) (2019) provides for establishment of cash management systems including a TSA. - Authorities envisaged TSA implementation in two stages (TSA-I and TSA-II). - Federal Cabinet approved Cash Management and Treasury Single Account Policy (2019); Cash Management and Treasury Single Account Rules (2020) followed; the Rules were updated in 2024. - Overarching aim: consolidate cash resources to strengthen government cash and liquidity position and improve fiscal discipline of public entities. - Implementation weaknesses and operational issues: - Closure of bank accounts under TSA reforms is not fully determined by the Budget Wing's well-established policy; decisions on which MDAs and extrabudgetary entities' bank accounts should be covered should be based on a broader sectorization exercise. - Following TSA Policy approval in 2019, authorities initially closed 3,000 MDAs' bank accounts but reinstated 500 of them due to mistaken closure of third-party trust accounts. - In the second phase, strong resistance from autonomous agencies to inclusion in the TSA led authorities to update the 2020 rules and adopt updated Rules in 2024 to introduce comprehensive arrangements with these entities. - The Budget Wing continues to close bank accounts based on statements from the State Bank of Pakistan or other banks, but authorities lack a clear picture of government accounts and their specific characteristics. - In absence of comprehensive information, accounts are closed on a case-by-case basis rather than holistically deciding institutional coverage of the TSA based on broader sectorization of all public entities. - No new accounts for MDAs are being opened without pre-approval of the FD. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 133. A weak TSA framework without a firm institutional coverage decision undermines effective ### 133. A weak TSA framework without a firm institutional coverage decision undermines effective ### Treasury Single Account (TSA): findings and vulnerabilities - A weak TSA framework without a firm institutional coverage decision undermines effective control over the government’s cash balances, leading to inefficiencies in the use of public funds and weakening overall budget authority. - Fragmented cash holdings across various accounts can result in idle balances that are not optimally utilized for government priorities. - Lack of transparency raises concerns about potential foregone interest revenue for the federal budget; it remains unclear who benefits from the interest earned on accounts held by federal government entities in commercial banks, and whether such earnings are captured in the national budget. - Addressing these gaps is essential to: - strengthen fiscal discipline, - reduce corruption vulnerabilities, and - enhance the efficiency of public financial management. ### Institutional framework for cash and debt management: setup and implementation gaps - Institutional structures established: - Treasury Cash Management Unit (TCMU) under the Budget Wing. - Cash Forecasting Unit (CFU) at the Treasury Office (for cash forecasting function). - Cash Coordination Committee (CCC) as a high-level decision-making body. - Debt Policy Coordination Office (DPCO). - Cash Management Working Group (CMWG) to prepare and oversee cash forecasts and the cash buffer policy. - Legal requirement (2022 Amendment to the Fiscal Responsibility and Debt Limitation (FRDL) Act) to establish a Debt Management Office (DMO) to consolidate external commercial borrowing and domestic wholesale borrowing functions and issue guidelines on retail borrowing. - Implementation weaknesses: - CFU is not operational because it is not staffed; cash forecasting is performed by a specialist in the Borrowing Section of the Budget Wing alongside unrelated responsibilities. - The CCC convenes on an ad-hoc basis with long intervals rather than monthly as intended; it does not systematically assess cash forecasts, oversee forecasting performance, or review the cash buffer policy. - The CMWG meets quarterly rather than monthly and cannot supply technical inputs on cash forecasts to the CCC. - Lack of weekly forecasts limits the ability to design more effective borrowing programs. ### Cash forecasting performance and operational practice - Cash forecasting performance is not monitored systematically. - Deviations from cash forecasts and major reasons behind these deviations are not developed and presented periodically to the CMWG and the CCC. - Fragmentation of forecasting responsibilities: - Budget Wing develops above-the-line cash flows and conveys these to the DMO. - DMO converts forecasts into weekly data mechanically by dividing cash balance projections evenly across weeks. - The Budget Wing remains essentially responsible for developing and monitoring the whole set of forecasts (above- and below-the-line flows and cash balance projections) as well as monitoring the cash buffer policy, but cannot effectively perform these functions under current arrangements. - Current cash management behaviour appears to ration existing cash rather than projecting realistic cash inflows and outflows. ### State-Owned Enterprises (SOEs): role, performance, and reforms - Rationale and risks: - SOEs are established to ensure supply of goods and services where private provision is inadequate. - If not well governed and transparent, SOEs can be a significant source of fiscal risk, poor service delivery, and corruption. - FY2024 aggregate SOE statistics (Annual Report on Federal State Owned Enterprises for Fiscal Year 2024): - Total assets: PRs 38,434 billion - Liabilities: PRs 32,571 billion - Net equity: PRs 5,863 billion - Total revenues: PRs 13,524 billion - Net loss: PRs 30 billion - Reform actions taken: - Triage system to categorize SOEs by financial viability and strategic importance (to decide privatize/restructure/retain). - SOE Ownership and Management Policy updated in 2023 to outline governance framework. - Central Monitoring Unit (CMU) established under the Corporate Wing to oversee SOE reforms and monitor financial and operational performance. - Continued push for privatization of non-strategic SOEs, though pace is affected by economic instability and resistance from autonomous agencies. - Adoption of the 2023 SOE Act aiming to align SOEs with corporate governance standards and improve legal frameworks. - 2024 Guidelines on C Level Appointments adopted to enhance governance, transparency, and operational efficiency of SOEs. - CMU publishes Aggregate Annual Reports on SOEs (e.g., FY2024, FY2023) and Bi-Annual Reports on SOE performance; SOE reporting is manual through pdf files with ongoing work on an IT system and online database for data collection and analysis. ### SOE governance weaknesses and recommended measures - Main weaknesses: - Historically weak boards lacking necessary competencies and managers lacking professional expertise. - Capacity gaps in reporting, business plan preparation and implementation, fulfillment of Public Service Obligations (PSOs), procurement, and daily operations. - Uncertainties in implementation of PSO costing guidelines and ambiguity on roles of line ministries and funding modalities for PSOs. - Exemptions: seven SOEs were exempted from the SOE Act in the 2023 Sovereign Wealth Fund (SWF) Act (concern noted); amendments have been proposed to end the SWF Act to remove those exemptions. - Recommended measures to realize governance improvements: - Strengthen board independence by implementing strict selection criteria for board members. - Enhance training and development: provide continuous training programs for board members on corporate governance, financial management, and sector-specific knowledge. - Implement robust oversight mechanisms: establish clear oversight mechanisms including regular audits, performance evaluations, and transparent reporting. - Promote transparency and accountability: make meeting minutes, decisions, and performance reports publicly available. - Foster a culture of ethical governance: set clear ethical standards and codes of conduct addressing conflicts of interest and ensuring decisions are in the SOE’s stakeholder interest. - Ensure effective coordination between SOE boards and government oversight bodies to align objectives and strategies. - Continue CMU training for SOE employees on reporting, governance, financial management, and compliance. - CMU should provide specific guidance on rules for transparent financial reporting on PSOs and require financial statements and timely fiscal reports from SOEs delivering PSOs. ### Privatization: process, oversight, and challenges - Corruption risks: - Privatization can create opportunities for corruption across stages due to information asymmetries and insider advantages. - Need for clear procedures and regulations, transparency in valuation and transactions, and increased parliamentary controls. - Institutional arrangements and recent activity: - Privatization Commission’s mandate covers federal government SOEs; operates under the Privatization Commission Ordinance, 2000. - Oversight includes independent audits by the Auditor General of Pakistan and parliamentary committees. - Cabinet Privatization Committee (headed by the Deputy Prime Minister) decides inclusion in the Privatization Program. - Latest Privatization Program adopted in August 2024 including 24 SOEs; program can change based on Cabinet SOE Sectorization Committee decisions. - Current privatization program (2024-2029) uses phased approach: Phase I, Phase II, Phase III companies. - Increased transparency: rules and regulations publicly available; live bidding processes broadcasted on TV at Prime Minister’s request. - Valuation and approval process: - Financial advisers apply methodology defined in legal framework; independent third-party valuator engagement and financial advisory consortiums improve process and transparency. - Three-tiered approval process: Transaction Committee, PC Board, and Cabinet Committee on Privatization / Cabinet. - Transaction Committee evaluates proposed privatization method (methodology discussion without value), PC Board approval is required, and Cabinet Privatization Committee approves method; the value is not presented to the Cabinet Committee until the bidding date. - Challenges: - Difficulty attracting tier 1 financial advisory firms for tenders. - Economic instability (inflation, fiscal deficits, high debt, SOE underperformance) reduces number of bids and complicates privatization. ### Sovereign Wealth Funds (SWF): risks and governance concerns - SWFs can be susceptible to corruption due to: - Opacity and lack of transparency in operations (creating opportunities for embezzlement and fraud). - Potential political exploitation since SWFs are often controlled by government entities. - Weak governance structures in high-corruption-risk countries, leading to inadequate oversight and accountability. - Noted example of risk: 1 Malaysia Development Berhad (1MDB) scandal illustrates severe anti-corruption compliance risks associated with SWFs. - Mitigation priorities: - Implement strong governance frameworks. - Enhance reporting and transparency. - Ensure rigorous oversight and accountability mechanisms. *Italic: IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | content unit 133–148* ### 149. The 2023 SWF Act is not yet operational, and authorities are working on amendments to ### tarea2025098-source-pdf - 149. The 2023 SWF Act is not yet operational, and authorities are working on amendments to ### Sovereign Wealth Fund (SWF) governance and amendments (paras 149–151) - Findings and context: - The 2023 SWF Act is not yet operational; authorities are drafting amendments to adopt governance mechanisms and safeguards for the SWF and its SOEs. - The 2023 SWF Act exempted seven SWF owned SOEs from the SOE Act. - Since the GCD mission team’s visit to Islamabad, the SWF’s nature and function have been extensively discussed within government and with the IMF; amendments are being drafted and vetted by the Law Division before submission to Parliament. - Intended scope of amendments: - Establish an effective governance structure and transparent operations aligned with high-quality governance and accountability standards applied to other SOEs under the 2023 SOE Act. - Focus areas: appointment of board members, reporting and disclosure, interactions and relations with the MoF and the budget, financial and fiscal controls, and accountability mechanisms. - Key proposed governance and disclosure measures: - Appointment and removal: (i) appointment criteria and procedures for SWF board members; (ii) removal processes requiring minimum transparency. - Reporting and disclosure: annual report with audited financial statements, external auditor reports, details of all fund transactions, investment policies, any special authorizations; disclosure of investment mandates, business plans, remunerations, legal frameworks, procurement policies, subsidiaries, related party transactions, conflicts of interest, ethics codes, and joint ventures. Board approval required before report publication. - Financial and fiscal controls: MoF mandate over fiscal risks related to the SWF; dividend rules; investments into the SWF through budget appropriation; prohibition of borrowing, lending, participating in PPPs, or receiving contributions from the Central Bank and state-owned entities. - Accountability mechanisms: SWF Board oversight of internal control and risk management systems; Board Chairman and CEO required to appear before Parliament annually; asset declarations by key officials. - Anti-corruption and procurement transparency: Anti-corruption frameworks to apply to SWF officials and SWF-affiliated SOEs; beneficial ownership disclosures in procurement and divestment processes. - Recommended legal and international alignment: - Follow international standards (for example, the OECD Guidelines on Corporate Governance of SOEs and the Santiago Principles), including guidance specific to SOE holding companies. - Clarify the legal nature and mandate of the SWF as a SOE and subject it to the SOE Act, adopting specific provisions to ensure governance structures correspond with a holding entity’s nature and mandate. - Require privatization or sales of assets and procurement to follow rules and policies adopted and published by the SWF’s Board that ensure open, competitive, transparent and non-discriminatory procedures, and establish minimum disclosure requirements for each stage of the process, including beneficial ownership. ### Non-financial asset management (paras 152–154) - Definitions and vulnerabilities: - GFSM 2014 defines nonfinancial assets as tangible assets like land, buildings, and equipment, and intangible assets like intellectual property. - Governance vulnerabilities arise through inventory losses; sales, privatization, leases and other allocations of public property rights; and use of government assets for personal needs. - Contributing weaknesses: lack of (i) asset registry; (ii) proper valuation of assets; (iii) transparent privatization policies; (iv) transparency in government leasing arrangements; absence of data on government non-financial assets; lack of proper accounting systems; and insufficient data and IT systems. - Recent reforms and remaining gaps: - In 2025, Asset Management Guidelines were approved as a follow-up to the 2023 PIMA CPIMA recommendations. - The Guidelines introduce a centralized asset registry in the FBAS for assets with values above PRs 1 million; assets below this threshold will remain in local registries. - The MoF, Expenditure Wing (EW) will guide recording practices through guidelines and uniform formats; authorities are developing methodologies and will prepare a manual to guide MDAs. - No guidance provided on managing legacy assets and valuation; the FS has not asked MDAs to take stock of legacy assets or specified registration cost bases. - No dedicated staff in the EW to further develop and manage this reform; consultants prepared the guidelines. ### Debt management (paras 155–160) - Governance vulnerabilities and needs: - Weaknesses arise from a lack of a comprehensive framework for borrowing authority and guarantees, unclear practices on assuming, monitoring, and reporting debt obligations, including off-budget debt and contingent liabilities (PPPs, project loans outside the budget). - Annual limits by Parliament on assuming debt obligations and guarantees are needed to maintain fiscal discipline. - Adequate accounting and reporting require an IFMIS and/or debt recording IT system for transparency. - Effective coordination between fiscal and monetary policy on public debt management is necessary; robust parliamentary and National Audit Office oversight is vital. - Institutional fragmentation and recent changes: - Debt management has been conducted under a fragmented institutional structure with multiple entities and overlapping responsibilities, complicating coordination and decision-making. - Amendment to the Fiscal Responsibility and Debt Limitation (FRDL) Act in June 2022 led to establishment of a dedicated Debt Management Office (DMO) and envisaged devolving external commercial borrowing to the DMO. - Current practices: international capital market issuances are managed by DMO; External Finance Wing (in consultation with DMO) manages financing from international commercial banks; the Ministry of Economic Affairs’ Economic Affairs Division carries out bilateral/multilateral external borrowing operations including front and back-office functions; SBP is in charge of back-office functions for domestic and external borrowing from markets; SECP captures Islamic Finance instruments. - Ideal model: a fully resourced, well-staffed, and empowered DMO should be responsible for these functions rather than management within the External Finance Wing. - Data and systems fragmentation: - DMFAS debt data repository currently includes only external debt data captured by the EAD, limiting comprehensive debt visibility and causing domestic debt data inefficiencies. - Authorities, with ADB technical assistance, have initiated integration of domestic debt data into DMFAS. - A comprehensive Integration Study Report by UNCTAD and roadmap were prepared after the GCD mission; the project is expected to be completed by September 2026. - Strategy, coordination, and operational issues: - Timely updating and implementation of a debt management strategy is essential to avoid “sub-optimal” borrowing choices; some issuance decisions appear ad-hoc (e.g., the recently introduced one-month bill). - Cash and debt management coordination seems mechanical; organizational framework around cash and debt management has not worked as designed, contributing to inefficient borrowing strategies. - Guarantees and on-lending: - Legal framework: Fiscal Responsibility and Debt Limitation (Amendment) 2005 imposes two ceilings on Government guarantees: (i) Flow ceiling—2 percent of GDP on the issuance of Government guarantees (renewal of existing guarantees considered new issuance); (ii) Stock ceiling—10 percent of GDP on total outstanding stock. - Policy for Relending of Foreign Loans (2020) by the EAD: borrowers bear exchange risk costs on actual basis and repay actual principal and interest paid by Government of Pakistan in foreign currency converted to Rupee equivalent issued by SBP; a one-time fixed administrative charge of 0.25 percent applies on loan disbursed to the borrower. - Guarantees disclosure: guaranteed debt stock is PRs 3.4 trillion (US$12 billion) as end of June 2024, mainly provided to power sector entities. - Debt management reports include guaranteed debt stock but do not provide information about on-lending or relending loans, nor data on receivables related to guarantees and on-lending, despite some entities failing to repay their guaranteed debt. ### Internal control, internal audit, and external audit (paras 161–164) - Importance: - Effective internal control systems and both internal and external audits are essential for appropriate decision-making, clear accountability, and reducing corruption risk. - Internal audit weaknesses: - Article 26 of the PFM Act 2019 requires creation of Chief Internal Auditor (CIA) positions within twelve months of the PFM Act commencement, reporting to the principal accounting officer; this provision has not been implemented and CIAs were not appointed. - Currently, 25 Chief Finance and Accounts Officers (CFAOs) serve in ministries/divisions to assist Principal Accounting Officers (PAOs) under the Financial Management and Powers of PAO Regulations (2021). - CIAs are not posted in all ministries/divisions, CFAOs in the remaining 15 ministries/divisions have yet to be ensured, and full implementation of the PFM Act 2019 remains incomplete. - In ministries/divisions with CFAOs, there is a lack of consistency, interest, and follow-up on internal audit findings. - External audit weaknesses and constraints on OAG: - The Office of the Auditor General (OAG) is an attached institution of the Federal Secretariat (FS), resulting in a lack of full independence. - Constitutional and legal framework: Article 171 of the Constitution and Article 7 of the Pakistan Audit Ordinance, 2001 require the Auditor General to attest Appropriation Accounts and Financial Statements of Federal, Provincial and Local Governments; certified accounts are submitted to the President and Governors, respectively. - As an attached institution, the Auditor General does not report directly to Parliament but through the FS, Prime Minister, and President, potentially compromising independence and objectivity. - OAG must obtain approval from the federal Public Service Commission to hire auditors. - OAG staffing shortage: deficit of 1,500 staff members; primary reason is fiscal constraints preventing hiring approvals. - Although the OAG budget is classified as charged expenditure (not subject to parliamentary vote), the OAG must follow budget execution rules and depends on budget releases by the FS, limiting operational independence. - Audit process effectiveness and follow-up: - OAG produces over 6,000 reports each year, but there is minimal or no follow-up from the Public Accounts Committee (PAC) and ministries/divisions. - 75 percent of the 34,000 recommendations made by the Supreme Audit Institution (SAI) are still pending discussion in the PAC. - Audit reports are often excessively long and repetitive; some reports reach up to 4,000 pages (e.g., the Federal Government Compliance Audit Report for FY2023-24 is four thousand pages long). - There are no systems to monitor responses to or compliance with audit findings and recommendations. - Suggested reforms to strengthen audit impact and parliamentary oversight: - Amend PAC regulations and AGP Act to empower institutions to ensure compliance with directives and make executive authority accountable for non-compliance. - Streamline audit reports: include concise recommendations for critical issues, organize findings by impact and urgency, and consider visual tools (e.g., traffic light systems) to indicate severity. - Strengthen PAC: mandate prompt review of audit reports, implement a tracking system requiring audited entities to report on implementation progress, provide targeted training for PAC members, and establish a centralized follow-up unit within the OAG or PAC Secretariat to monitor implementation and publish regular progress updates. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | pages 73–77* ### 165. Human Resources (HR) and organizational structure: There are ongoing challenges related ### 165. Human Resources (HR) and organizational structure ### Key findings on HR and organizational structure - Ongoing challenges related to the Finance Secretary’s organizational structure and technical capacity hinder effective execution of its functions. - Authorities could consider implementing recommendations from the World Bank’s previous functional review and the IMF’s Fiscal Affairs Department technical assistance on Expenditure and Budget Wings. - Many reform areas—such as macro-fiscal analysis, asset management, SOE monitoring within the Central Monitoring Unit (CMU), and debt management—are staffed by contractors rather than permanent Finance Secretary personnel, which may affect continuity and institutional capacity. - Authorities have created new institutions instead of addressing structural weaknesses within MDAs or focusing on stabilizing the macroeconomy, leading to institutional fragmentation that undermines clear lines of responsibility and accountability across the public sector. ### Policy recommendations (HR/structure) - Implement World Bank functional review recommendations and IMF Fiscal Affairs Department technical assistance on Expenditure and Budget Wings to strengthen organizational structure and technical capacity. - Transition critical reform-area functions (macro-fiscal analysis, asset management, SOE monitoring, debt management) from contractors to permanent Finance Secretary personnel to improve continuity and institutional capacity. - Prioritize addressing structural weaknesses within MDAs and stabilizing the macroeconomy rather than creating new institutions to reduce institutional fragmentation and clarify lines of responsibility and accountability. --- ### 168. Digitalization ### Key findings on digitalization - Notable progress in IT and digitalization efforts has occurred, including systems such as the FABS and other digital platforms, with improvements in automation and data management. - These advancements have occurred without a comprehensive or holistic digital strategy. - The absence of an overarching digital strategy limits coherence and long-term sustainability of digital initiatives. ### Policy recommendations (digitalization) - Develop and adopt a comprehensive, holistic digital strategy to provide coherence and long-term sustainability for existing and future IT/digital initiatives such as FABS and other platforms. - Ensure digitalization efforts are aligned with institutional capacity-building and human resources reforms so digital systems support, rather than substitute for, durable institutional improvements. --- ### Table 6. Recommendations on Public Financial Management — selected actions and timelines - 1. Bring forward to publication of preliminary BSP in January or include preliminary forecasts for macro-fiscal indicators, IBCs in the BCC. - Responsible Authority: Finance Division - Objective: Strengthen the top-down budgeting, macro-fiscal analysis - Timeline: ST - 2. Analyze the accuracy of previous macro-fiscal forecasts and budget estimates—ex-post reconciliation. - Responsible Authority: Finance Division - Objective: Strengthen the top-down budgeting, macro-fiscal analysis - Timeline: ST - 3. Avoid in-year budget adjustments without getting the Parliament’s ex-ante approval through the use of supplementary grants, while maintaining some flexibility in budget execution through introducing contingency reserve. - Responsible Authority: Cabinet; Finance Division - Objective: Strengthen budget execution - Timeline: ST - 4. Continue improving commitment controls by enforcement of the process after the establishment of the link between FABS and EPADs. - Responsible Authority: Cabinet; Finance Division - Objective: Strengthen budget execution - Timeline: ST - 5. Enhance transparency, efficiency, and affordability of PSDP by: - Continuing to enforce the 10% cap on allocations for new projects. - Further rationalizing the portfolio of technically approved projects to retain only high-priority initiatives. - Ensure protection of capital expenditures through limiting the in-year adjustments of capital expenditure through utilization of supplementary or technical grants. - Responsible Authority: Ministry of Planning Development & Special Initiatives - Objective: Improve PIM - Timeline: ST (ongoing) - 6. Enhance transparency regarding strategic investments by: - producing and making public the first annual report of the Special Investment Facilitation Council, including information on all deals that it has facilitated, concessions (tax, policy/regulatory, or legislative) with detailed rationale and value of the concession. - Publishing the information on the implementation of the BoI (Amendment) Act, Article 10F (Power to relax or exempt from regulatory compliance). - Responsible Authority: SIFC - Objective: Improve transparency and accountability - Timeline: ST (ongoing) - 7. Revise procurement legislation and Public Procurement Rules to align with best practices and eliminate preferences, including for firms with state ownership and charitable organizations. - Responsible Authority: PPRA - Objective: Ensure transparency, efficiency, and accountability in public procurement processes - Timeline: ST - 8. Institutionalize regular report(s) on Government web-site(s) of quarterly monitoring reports on public procurement for development and non development expenditure, including information on contract award winners, segregated data on procurement by categories (Goods, Works and Services) and procuring agencies, use of market approaches (open, limited and direct), compliance percentage and data on violations, methods of procurement, competition, grievances, and overall and individual performance on contracts for time and cost overruns. - Responsible Authority: PPRA/Procuring agencies - Objective: Enhance transparency and accountability and contribute to fiscal governance and improved public financial management - Timeline: ST - 9. Within 18 months require the usage of the Government’s e-Government Procurement System (EPADS) for all procurement transactions and integration of systems with central e-procurement system wherever regulatory framework allows the use of other systems. - Responsible Authority: PPRA - Objective: Promote competitive bidding processes and ensure fiscal prudence - Timeline: MT - 10. Improve the capacity of the public procurement system by introducing mandatory certifications for procurement professionals and establish dedicated procurement cells within public sector organizations. - Responsible Authority: PPRA - Objective: Build institutional resilience, memory and operational efficiency - Timeline: ST - 11. Enhance the effectiveness of complaint processes by establishing standards for the resolution of complaints and public dissemination of report on grievances. - Responsible Authority: PPRA - Objective: Transparency, Fairness and improved performance - Timeline: ST - 12. Enhance cash management by implementing the overarching sectorization exercise to unify decision-making around TSA institutional coverage, while also improving analytical capabilities and adopting a forward-looking approach to cash forecasting. - Responsible Authority: Finance Division (Budget Wing, Expenditure Wing) - Objective: Strengthen cash management - Timeline: ST - 13. Improve the capacity of SOE Boards as well as the technical capacity of SOEs staff through organizing regular trainings. - Responsible Authority: Finance Division, Corporate Wing - Objective: Continue improving SOE monitoring and governance - Timeline: ST (ongoing) - 14. Strengthen debt management by: - Centralizing debt management activities under the DMO: Expanding its mandate to include external, SOE, Sukuk, and guaranteed debt in addition to domestic debt. - Consolidating all the data in a single IT system such as DMFAS under the control of the DMO with a clear implementation roadmap. - Ensuring full data reconciliation prior to consolidation of the responsibilities in the DMO, possibly including an independent audit of the debt database, with reconciliation on a creditor-by-creditor basis—particularly for external and domestic debt. - Publishing retrospective reports comparing the actions with the announced borrowing plans. - Responsible Authority: Finance Division, Ministry of Economic Affairs - Objective: Improve debt management - Timeline: ST (ongoing) - 15. Enforce the PFM Act Article 26 for internal controls and establishing internal audit functions. - Responsible Authority: Cabinet, Finance Division, OAG - Objective: Strengthen internal audit - Timeline: MT - 16. Further improve the independence of the OAG by establishing full institutional independence through promulgation of a new AGP Act and bringing appropriate amendments in the Rules of Business 1973 in consultation with the Department of AGP. AGP’s budget should be in line with its requirements and not subject to budget cuts and hiring limitations under the financial and operational independence required for SAIs independence. - Responsible Authority: Cabinet, Finance Division, OAG - Objective: Strengthen external audit - Timeline: LT - 17. Streamline audit reports by including concise recommendations for the most critical issues, enhancing follow-up mechanisms by strengthening the role of the PACs and the Department of AGP for taking necessary action in case of repeated non-compliance. - Responsible Authority: Cabinet, Finance Division, OAG, PAC Secretariat - Objective: Strengthen external audit - Timeline: MT --- ### Section III. Market Regulation — selected findings ### Macro and regulatory landscape - A key state function is to regulate markets to enable private sector investment while reducing corruption and rent seeking; effective regulatory frameworks promote transparency, competition, and correction of market failures. - Unclear rules, inconsistent application, fragmented regulatory authority, and weak oversight amplify governance and corruption risks (IMF Framework for Enhanced Engagement on Governance, 2018). - Environments with high regulatory discretion and weak accountability are especially vulnerable to corruption. ### Pakistan’s regulatory environment — findings and statistics - Pakistan has consistently ranked lower than regional peers in comparative business environment indicators; corruption and efficiency are areas of concern. - World Bank Enterprise Survey of 2022: 20.7 percent of firms identified business licensing and issuance of licenses as a major or severe indicator of regulatory and governance constraints. - The World Bank Regulatory Quality Index scores Pakistan’s regulatory quality much below the average of its peer lower middle-income countries—with Pakistan ranked closer to the low-income countries. - Pakistan’s legal framework is inconsistent: some regulations exclude key sectors from supervision while others promote excessive regulation; strong legal frameworks are weakened by bureaucratic hurdles, inconsistent implementation, lack of enforcement, and low accountability. - Approximately 120 federal regulatory bodies exist, with many more at the provincial level (Pakistan Institute of Development Economics). - Manufacturing firms must navigate over 170 separate registrations and licenses; mining businesses face more than 70 regulatory hurdles (Planning Commission of Pakistan, 2018). - Regulatory fragmentation post 18th amendment requires investors operating across the country to comply with five distinct regulatory regimes administered without coordination and often with overlapping jurisdictions. ### Reform progress and potential gains - Government implemented almost 300 reforms to improve the regulatory environment; Pakistan Regulatory Modernization Initiative (PRMI) aims to further streamline business regulations and reduce bureaucratic inefficiencies. - Pakistan Business Portal (PBP) has streamlined business registration and is integrated with NADRA and SECP. - SECP digital reforms: one-stop-shop and Business Facilitation Center (BFC) in Islamabad; digitalization of company incorporation via eZfile integrated with multiple national and provincial authorities and digital banks. - Over 99 percent of companies, including limited liability companies, are incorporated online, with approval granted within four hours. - Pakistan ranks 6th out of 50 economies for digital initiatives implemented by countries in the World Bank’s 2024 Business Ready Report. - World Bank April 2025 Pakistan Development Update projection: real GDP growth projected to rise from 2.7 percent in FY2025 to 3.1 percent in FY2026 and 3.4 percent in FY2027 if Pakistan continues regular structural reforms. - IMF modeling suggests that streamlining business registration, licensing, and compliance—especially through digital platforms and harmonized frameworks—can contribute up to 2 percentage points of additional GDP growth over five years when implemented consistently. - Recent IMF modeling indicates that closing Pakistan’s business regulation gaps by 50 percent—benchmarked against emerging market and regional peers—could yield substantial macroeconomic gains over both short- and medium-term horizons. *Italicized source: IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic (excerpts).* ### 179. No unified framework exists in licensing and issuance of permits. Trade licenses are issued by ### 179. No unified framework exists in licensing and issuance of permits. Trade licenses are issued by ### Fragmentation in licensing, permits, and enforcement - Trade licenses are issued by municipal corporations, district councils, or union councils, depending on the location; professional licenses are overseen by sector-specific bodies. - National standards exist under the Building Code of Pakistan (2021), but implementation is inconsistent across regions and provinces. - Enforcement of building regulations is decentralized. - Absence of a comprehensive commercial registry and harmonized licensing system impedes transparency and accountability. - Devolution under the 18th Constitutional Amendment produced a highly decentralized governance structure; intergovernmental coordination remains weak and ad hoc, producing duplication, overlapping mandates, and inconsistent regulatory implementation across jurisdictions (example: energy sector has parallel federal and provincial institutions with unclear boundaries and conflicting rules). - A business operating in all provinces may face up to five times the number of departmental interactions and regulations compared with operating in one region. ### Primary regulatory institutions (overview) - Securities and Exchange Commission of Pakistan (SECP): Regulates company law, securities, and financial disclosures. - Competition Commission of Pakistan (CCP): Prevents monopolistic practices and promotes fair trade. - National Electric Power Regulatory Authority (NEPRA): Oversees electricity generation, tariffs, and licensing. - Pakistan Telecommunication Authority (PTA): Regulates digital infrastructure, spectrum, and telecom services. - Drug Regulatory Authority of Pakistan (DRAP): Controls drug registration, quality, and distribution. - Federal Board of Revenue (FBR): Administers tax policy, customs, and revenue collection. - Trade Development Authority of Pakistan (TDAP): Facilitates export promotion and trade development. - Pakistan Electronic Media Regulatory Authority (PEMRA): Licenses and monitors electronic media content. ### SECP integration, digitization, and regulatory simplification - The SECP’s registration portal is integrated with: Federal Board of Revenue (FBR); Employees’ Old-Age Benefits Institution; Punjab Employees’ Social Security Institution (PESSI); Sindh Employees’ Social Security Institution; Balochistan Employees’ Social Security Institution (BESSI); Labour and Human Resource Departments; Excise and Taxation Departments; Central Depository Company. - Under the Pakistan Regulatory Modernization Initiative (PRMI), integration completed with: Special Technology Zones Authority, Pakistan Software Export Board, and Pakistan Engineering Council, with further expansion underway. - The number of statutory forms required for company compliance has been reduced from 75 to 28 through the issuance of consolidated Companies Regulations, 2024, under S.R.O 210(1) 2024. - Company incorporation requirements have been digitized and simplified from 6 to 4 forms. This is applicable for public and private companies. - Subsequent text notes company incorporation requirements simplified from 6 and 4 forms for public and private companies respectively, to a single digitized form (consolidated “Companies Regulations, 2024” under S.R.O. 210(1)/2024). ### Rule-making, governance vulnerabilities, and accountability gaps - Pakistan’s rule-making process is marked by fragmented institutional mandates, weak transparency mechanisms, and limited channels for legal or public challenge. - These weaknesses reduce predictability and integrity of regulatory policymaking, create space for discretionary enforcement, and heighten corruption risks. - Regulatory authorities often operate with limited independence, high authority, and minimal accountability. - SECP: administrative, financial, and operational independence is well established in law, including a defined appointment process for commissioners; however, senior management processes have at times not been perceived as transparent. Sections 5 and 6 authorize the Federal Government to appoint the Commissioners and the Chairman of the SECP in accordance with a process approved by the Federal Cabinet. - Public monitoring of regulatory performance is constrained by limited publicly available information on regulatory transactions or overall SECP activity. - Governance and accountability issues are compounded by an absence of regulatory impact assessments and minimal publication of regulatory proceedings or outcomes. ### Market structure, state presence, and regulatory conflicts of interest - State market share examples: - Over 70 percent of the market in mining, construction, electricity and oil, and transport and communications. - Between 40 and 50 percent of the market in agriculture, finance and insurance, and health and education. - Relatively marginal state involvement in manufacturing, and wholesale and retail. - Where regulators enforce rules on state-owned firms, expectation or reality of privileged treatment is common; public procurement and state insurance arrangements are cited as examples (NICL monopoly on coverage of public assets; State Life Insurance Company’s government guarantees; first right of refusal for Pakistan Reinsurance Company Ltd (PRCL)). - Pakistan’s insurance to GDP ratio is under 1 percent. ### Business experience, reform progress, and regulatory costs - Regulatory reform progress: - Adoption of a regulatory reform program in early 2017 based on the World Bank Ease of Doing Business (DB) methodology. - Pakistan’s DB ranking improved by 39 positions in three years—from 149 to 108 during 2017 and 2020. - The Pakistan Regulatory Modernization Initiative (PRMI) expanded investment climate reforms in 2021 to overcome limitations of the DB methodology and mitigate risks from its discontinuation. - Mixed firm experience: processes for registrations, licenses, certificates and other permits (RLCOs) have been made more streamlined, but this has not yet reduced discretion or corruption. - World Bank Enterprise Survey 2022: in the construction sector, days required to obtain construction permits are almost half regional averages and significantly lower than lower middle income country averages, yet a drastically larger proportion of construction sector firms in Pakistan reported being requested or expected to give gifts or informal payments than regional or lower middle income country averages. - Comparative regulatory cost data: - Obtaining a construction permit requires an average of 9 procedures. - Average cost of obtaining a construction permit is 8.8 percent of the value of the intended construction project. - The percentage cost borne by Pakistani firms is far higher than in India, Bangladesh and Sri Lanka. - Transaction costs for regulatory compliance are considerably higher than neighboring countries for cross-border transfers of money and goods. - Pakistan Institute of Development Economics (PIDE) “sludge” audits document substantial wastage of time and money across multiple sectors to fulfill regulatory obligations. ### Policy recommendations and good-practice principles - Sustained improvement requires rationalizing existing regulations and limiting creation of new requirements. - Initial steps suggested: - Enhance the established central database of all business regulations. - Systematically review and eliminate unnecessary and/or duplicative rules. - Implement a rigorous process of review for all new proposed business regulations to limit creation of new obligations and regulatory hurdles. - Special attention recommended for regulations affecting: - Credit enforcement framework (creditor and debtor rights and insolvency). - Market entry and exit (corporate restructuring). - Recommended institutional and governance principles: - Institutional separation of regulatory oversight from regulatory implementation. - Transparent, rigorous, and merit-based short-listing and appointment processes for heads of regulatory authorities. - Clear rules and protocols to guide fair and evenhanded application of rules. - Regular reporting and oversight to a Supervisory Board to assess management and controls. - Organizational accountability to check if enforcement achieves objectives and individual accountability for staff performance and integrity. - SECP leadership suggested as a potential convenor for digitization and right-sizing efforts. ### Sectoral example: Sugar sector (Box 4) - There are around 90 licensed sugar mills in Pakistan, with a significant number owned by political party leaders and current or past elected legislators. - Issuing of licenses to operate sugar mills is tightly controlled by the public sector, and new licenses in the past have been issued to politically connected individuals. - Sugarcane farmers face constraints (e.g., restricted geographic sales and processing types), reducing competition and enabling cartelization among millers. - Government has often subsidized sugar export; subsidies have directly benefited sugar mill owners without robust cost-benefit analysis by the Government. - The Competition Commission of Pakistan (CCP) investigated and imposed penalties on the Pakistan Sugar Mill Association (PSMA) in 2009 and 2021, but inquiries have been challenged in courts and at the CAT, highlighting the ineffectiveness of the competition authority. - Federal and provincial price controls on sugar and other essential commodities have created distortions, leading to supply shortages, hoarding, and artificial price increases for consumers; price controls remain a mainstay of federal policy despite curtailment at provincial level. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 193. In Pakistan, trade policies are shaped by Pakistan’s Customs Act, tariff structures, and ### In Pakistan, trade policies are shaped by Pakistan’s Customs Act, tariff structures, and international trade agreements. ### Institutional roles and coordination - Ministry of Commerce: oversees trade regulations. - Trade Development Authority of Pakistan (TDAP): promotes exports. - Federal Board of Revenue (FBR): manages import duties and customs. - Board of Investment (BOI), under the Prime Minister’s Office: - Advises on investment-related reforms, promotes tariff rationalization, reduces regulatory barriers—particularly in Special Economic Zones (SEZs). - Aligns tariff structures with investment priorities via collaboration with the National Tariff Commission (NTC) and the Ministry of Commerce. - Facilitates regulatory simplification through the Better Business Regulatory Initiative and serves as a one-window interface for investors navigating customs, licensing, and tariff exemptions. - Special Investment Facilitation Council (SIFC): fast-tracks investment deals across agriculture, minerals, energy, and IT. - National Tariff Commission (NTC): now the formal tariff policy function holder, supported by a high-level cross-ministerial National Tariff Board and the Tariff Policy Center (NTC’s technical arm). ### Tariff structure, protection, and economic impact - Pakistan’s average applied tariff rate stands at 20.19 percent, the highest in South Asia, compared to a regional average of 10.57 percent. - Tariff composition: - 11.93 percent customs duty - 3.66 percent additional customs duty - 4.60 percent regulatory duties - Tariffs raise input costs and discourage investment in higher value-added sectors. - The Government relies on taxes of international trade as a major source of revenue, comprising almost 50 percent of total tax revenue. - Customs duties "have averaged made up 12 percent of total tax revenue in over the past five fiscal years" (text as presented). - Tariffs serve dual roles: - Revenue mobilization (higher-than-expected share of tax revenue given development level). - Protectionist shielding of specific domestic sectors, producing selective protection and market distortions. - Pakistan’s aggressive use of para-tariffs contributed to a decline in the export-to-GDP ratio—from over 15 percent in the 1990s to just above 10 percent in 2024. - Trade reform potential: consistent implementation of trade reforms can increase growth by approximately 2 percent over a five-year period while having a meaningfully positive impact on reducing inequality. ### Tariff reform initiatives and targets - National Tariff Policy (2019-2024) moved tariff policy under the NTC from the FBR. - National Tariff Policy (NTP) 2025–30: - Builds on foundational NTP and outlines a detailed timeline of liberalization. - Aims to phase out ACDs within four years and RDs within five years. - Seeks to consolidate tariff slabs and transition exemptions to a more rules-based framework. - Despite reforms, the tariff structure remains complex and prone to capture by special interest groups; discretionary exemptions under the fifth schedule and Section 19 of the Customs Act persist. ### Institutional fragmentation and governance constraints - Institutional fragmentation undermines policy coherence, efficiency, and reform momentum. - Overlapping mandates and siloed decision-making impede coordinated, evidence-based interventions across sectors (example: automotive manufacturing). - Absence of a formal inter-ministerial coordination mechanism produces divergent targets, overlapping regulations, and inconsistent incentive structures. ### Technical capacity, due process, and administrative loopholes - NTC capacity constraints: - Tariff structure covers over 5,000 product codes spanning 21 product categories and different parts of sector-specific value chains. - NTC faces a shortage of technical experts and often relies on industry lobby groups or consultants for technical data and analysis. - In cases requiring quick decisions (e.g., anti-dumping duties), NTC is technically handicapped, opening the process to protectionist pressures. - Due process challenges: - Formal legal appeals exist through a specialized independent appellate tribunal and the Higher Judiciary. - Concerns include (i) judicial overreach with interim orders on NTC decisions, (ii) lack of clarity on the scope of Higher Court review, and (iii) timing of appeals and review—creating unpredictability that can deter investment. - Customs administration loopholes: - Weaknesses in enforcement, classification, and post-clearance audit systems enable misdeclaration of goods, under-invoicing, and misuse of concessional SROs. - Administrative gaps facilitate tax avoidance or preferential treatment, undermining tariff rationalization and creating uneven competitive environments. ### Non-Tariff Barriers (NTBs) - NTBs impact agriculture, energy, and manufacturing. - World Bank WITS statistics: - Import coverage ratio for NTBs: 33.12 percent. - Export coverage ratio for NTBs: 18.65 percent. - Frequently imposed NTBs: licensing requirements, certification mandates, and export registration formalities. - Sector examples: - Energy: pricing distortions, subsidy mismanagement, and regulatory inefficiencies contributing to arrears accumulation and market inefficiencies (2024 IMF Country Report). - Sugar: NTBs include export restrictions, price controls, and preferential treatment for certain producers. ### Competition landscape and enforcement gaps - Competition Commission of Pakistan (CCP): - Has taken steps to identify bottlenecks, entry barriers, and skewed legal and regulatory frameworks and issued Policy Notes. - Enforcement remains constrained despite a modern competition law (enacted in 2010). - Limits include state interventions, lack of alignment among sector regulators, delays in meeting governance requirements, and loopholes excluding key sectors (e.g., where SOEs or legal monopolies exist). - Operational and institutional weaknesses: - CCP operations have been interrupted by failures to notify sufficient Commission members. - Federal Government appointment processes are opaque, leaving Ministry of Finance with significant discretion. - Competition Appellate Tribunal (CAT) was largely non-functional over the past decade, producing a backlog: - More than 550 cases of pending litigation on CCP decisions at the CAT and within the judiciary. - Pending cases account for approximately US$ 265 million of penalties levied. - CAT has recently been fully notified with appointment of a Chairman and members; efficiency will be assessed based on resolution of pending cases. - Sector-specific regulators limit CCP effectiveness: - Section 29(b) of the Competition Act permits CCP to assess anti-competitive provisions but only issue non-binding policy notes. - Sectoral regulators (e.g., Pakistan Telecommunications Authority, Pakistan Civil Aviation Authority) have mandates that can impair CCP’s regulation of anti-competitive behavior. - Existing MoUs (SECP, PTA, PPRA, NAB) may need improved information sharing and collaboration to advance oversight and accountability. ### Key findings and implications - High average applied tariff (20.19 percent) with complex para-tariff layers and discretionary exemptions distorts markets and raises input costs. - Institutional fragmentation and weak technical capacity at NTC reduce credibility of tariff reviews and leave policy vulnerable to vested interests. - Customs administration weaknesses and NTBs further erode competitiveness and export performance. - Competition enforcement is hampered by governance shortfalls, judicial backlogs, and limited cooperation with sectoral regulators—constraining efforts to curb cartelization and abuse of dominance in key sectors. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 210. Pakistan has made progress in the market regulation ecosystem; with both CCP and SECP ### 210. Pakistan has made progress in the market regulation ecosystem; with both CCP and SECP spearheading recent reforms, however, this has not yet translated into a business environment that encourages growth ### Market governance and regulatory weaknesses — findings - Pakistan’s regulatory environment is described as opaque and discretionary, constraining the private sector. - Across sectors, there is overregulation of private enterprises and under enforcement of guard rails meant to safeguard economic actors. - Autonomous bodies meant to regulate the private sector are heavily linked with the federal government, and recourse mechanisms are underwhelming. - Governance weaknesses undermine the effectiveness of Pakistan’s regulators and facilitate opportunities for corruption. - Government encroachment on the private sector through (i) intrusive and transparent regulators and (ii) crowding out by SOEs is identified as a continuing drag on economic growth. - Strategic choice: Pakistan “must make the choice on whether its private sector operates in the free market or planned economy model.” ### Recommendations for improvement — high-level objectives - Simplify procedures, enhance transparency, and curb discretionary authority across regulatory regimes. - Create a comprehensive data set of all federal business regulations and eliminate regulations deemed unnecessary based on a structured and systematic review. - Create a mandatory review process of all proposals to establish new business regulations; international good practice revolves around Regulatory Impact Assessments (“RIA”) that evaluate the benefits and costs of the proposed rule and involve affected businesses. - Reform appointment processes for heads of regulatory agencies and senior management to ensure transparency, merit-based selection, and rigorous review of expertise and integrity. - Establish greater clarity in organizational accountability of regulatory bodies and increase attention to individual accountability, especially when officials engage in collusive behavior with firms. - Strengthen collaboration with accountability bodies, such as the National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA). - Dedicate resources to strengthen organizational capabilities and individual skills in regulatory bodies. - Address backlog and enforcement at the Competition Commission of Pakistan (CCP) and strengthen downstream impact of CCP findings through coordination with accountability institutions (Auditor General, NAB). - Operationalize and back the Market Intelligence Unit (MIU) with effective enforcement action to detect anti-competitive conduct proactively. - Ensure collusive or illegal conduct triggers consistent legal and institutional responses, holding both public and private actors accountable. - Increase coherence of market regulation (e.g., tariffs) through implementation of the National Tariff Policy. - Expand digitalization of administrative processes to minimize face-to-face interactions, improve auditability, and strengthen accountability. - Reinforce judicial and administrative review pathways to bolster access to redress and regulatory transparency. - Ministry of Information Technology and Telecommunication (MoITT) to lead a phased national initiative to digitize administrative and compliance processes, aligning with international best practices in digital governance and establishing institutional accountability mechanisms. ### Table 8 — Recommended actions on Market Regulation (selected actions, responsible authority, objectives, timeline) - 1. Under the leadership of the SECP, enhance regulatory consistency within 18 months by: (1) establish a comprehensive database of all federal business regulations, (2) eliminate unnecessary regulations based on structured systematic review; (3) create a review process based on international good practice for all new regulatory proposals. - Responsible Authority: Ministry of Finance - Action Objective: Ensure that the regulators are more independent, transparent; Guarantee a merit-based appointment system; Reinforce regulatory credibility and efficiency; Detect cartelization, abuse of dominance, and anti-competitive practices across industries - Timeline: MT - 2. Strengthen the independence of key regulatory bodies, including the CCP and SECP, by enhancing the selection (short listing) process for the executive and senior management to ensure a rigorous, transparent, and merit-based process. - Responsible Authority: Ministry of Finance - Action Objective: To safeguard regulatory independence and credibility by ensuring that appointments to executive and senior management positions within the CCP and SECP are governed by transparent, rigorous, and merit-based mechanisms, to minimize political or discretionary influence and align with international standards for regulatory governance. - Timeline: ST - 3. Increase transparency and enhance efficiency by systematically digitizing the process of complying with regulations, starting with the regulations identified as creating the greatest burden and the greatest risk of corruption. Within 15 months, establish the list of regulatory processes to be digitized, and demonstrate progress in introducing digitized processes. - Responsible Authority: Ministry of Law and Justice (Ministry of Planning, Development and Special Initiatives) - Action Objective: To enhance regulatory transparency, efficiency, and integrity by systematically digitizing high-burden, high-risk compliance procedures to minimize discretion, reduce administrative friction, and strengthen public trust in regulatory governance. To expedite digitization of licensing processes to enable end- to -end submission and processing without manual intervention. - Timeline: MT - 4. Enhance accountability by reducing the backlog of CCP cases, and strengthen collaboration between CCP and NAB/FIA to investigate findings of collusion and other corrupt behavior. - Responsible Authority: Competition Commission of Pakistan / Ministry of Finance - Action Objective: To reinforce the institutional integrity and enforcement effectiveness of the Competition Commission of Pakistan (CCP). To enhance regulatory accountability and deter market abuse by clearing the CCP’s backlog of cases and establishing robust investigative linkages between CCP, NAB (National Accountability Bureau), and FIA (Federal Investigation Agency) for prosecuting violations. - Timeline: MT - Tariff Policy actions: - 5. Simplify Tariff Regime: Implement the National Tariff Policy (2025-2030). - Responsible Authority: National Tariff Board - Action Objective: Continue reform momentum on simplifying the tariff regime; Reduce incentives for rent seeking and increase transparency. - Timeline: ST - 6. Reduce Loopholes in Customs Administration: Phase out Section 18A (Fifth Schedule) and limit use of exemptions under Section 19 of the Customs Act. Strengthen customs enforcement and oversight to close administrative loopholes that undermine the impact of tariff reforms. - Responsible Authority: Federal Board of Revenue - Action Objective: Strengthen customs enforcement; Streamline customs processes; Reduce discretionary tax relief, ensuring a fair and predictable tariff structure. - Timeline: ST - 7. Evidence Based Decision Making: Enhance the technical capacity of the National Tariff Commission to make evidence-based policy decisions and reduce reliance on external consultants and mitigate the influence of lobby groups. - Responsible Authority: Ministry of Commerce - Action Objective: Enhance institutional credibility; Improve policy effectiveness; Reduce external influence - Timeline: MT ### Financial Sector Oversight — background and scope - FSO in the report considers governance of the supervisory authority, the State Bank of Pakistan (SBP), and supervisory oversight of banks’ corporate governance and related areas, with emphasis on governance weaknesses that can increase vulnerability to corruption. - The governance framework for FSO is drawn from the Basel Core Principles for Effective Banking Supervision (April 2024) (the BCPs). - Supervision is split between SBP and the SECP: - SBP regulates and supervises credit institutions (banks, development finance institutions (DFIs) and microfinance banks (MFBs)), exchange companies, payment service operators/payment system providers, electronic money institutions (EMIs) and credit bureaus. - SECP regulates non-bank financial institutions, including pension and insurance companies. - Incidents in capital markets have lowered confidence in capital markets and their supervision according to market participants. - General assessment: “The general state of financial sector oversight is good, but there are issues related to the compliance with BCP and broader issues that deserve to be addressed.” Key systemic issues include overreach of the state, institutional fragmentation, lack of accountability and information, and failures of the judiciary. ### Financial sector structure, performance, and ongoing reforms — key statistics and findings - The Pakistan banking sector constitutes around 80 percent of the financial sector's assets, the equivalent of around 48 percent of GDP at end June 2024. - Number of banks: 31 banks operating in Pakistan: five public sector banks, twenty private sector banks, four foreign banks (in branch mode) and two specialized banks. - Branch network size: approximately 17,000 branches. - Islamic banking institutions (IBIs) share: IBIs comprise around 19 percent of total assets of the banking sector and 23 percent share of total deposits of the banking sector at end June 2024. - Number and composition of IBIs: 22 IBIs, including six full-fledged Islamic banks and 16 conventional banks that have standalone Islamic banking branches. IBIs had 5,157 branches at end June 2024. - Financial sector assets as percent of GDP as of June 2024 (Table 9): - MFBs: 0.7% - DFIs: 2.3% - NBFIs: 3.8% - Insurance: 3.0% - CDNS: 3.0% - Banks: 48.7% - Total: 61.5% - Source: State Bank of Pakistan. Note: CDNS is the Central Directorate for National Savings, a government body organizing a national savings scheme. - Banks’ business model and profitability: - Treasury bill rate: was hovering above 20 percent in the first half of 2024 but has since declined to around 12 percent by end March 2025. - Credit to the government makes up more than 60 percent of banks assets. - Banks earn a return on equity above 25 percent; the majority are well capitalized and liquid, but one bank remains undercapitalized. - Expected decline in interest rates is likely to reduce profitability. - Constraints on bank lending: credit to the private sector is very low compared to peers; limited lending attributed in part to poor functioning of the legal system (Rule of Law section), including stretched capacity to handle defaults and variable land registration quality. - Commitments and reforms: - Pakistan has committed to refrain from earlier practice of influencing distribution of credit. - Crisis management framework will be finalized and undercapitalized financial institutions will be resolved. - MFBs require recapitalization before joining the deposit insurance scheme. - Authorities will work to reduce non-performing loans (NPLs). - Regulatory standards will be reinforced (via restoration of capital conservation buffers) and consistently enforced (including adherence to prudential leverage ratios) as economic conditions improve and lending activity picks up. - SBP’s ownership of financial institutions will be transferred to the government. - Consideration of legal and regulatory reform to strengthen enforcement of claims, enforceability of collateral, and debt collection to improve credit to the private sector. - Deepening capital markets, developing insurance and private pension sectors, and ensuring proper regulation and supervision of the pension sector are highlighted as catalytic and confidence-building measures. - SBP legal, regulatory, and supervisory upgrades: - Significant amendments enacted in the SBP Act; Banking Companies Ordinance (BCO); and the Deposit Protection Corporation (DPC) Act. - BCO amended to strengthen resolution and crisis management, provide explicit legal coverage for Islamic banking operations, and promote financial inclusion and consumer protection. - SBP adopted a Risk Based Supervision (RBS) Framework in 2021. - SBP has developed SupTech / business intelligence tools. - SBP contributed to removal of Pakistan from the FATF “grey list” by strengthening the AML/CFT framework. - New licensing and regulatory framework issued for digital banks (DBs). - SBP supervision resourcing: - The SBP Banking Supervision Group is headed by an Executive Director and reports to the Deputy Governor responsible for Banking and Financial Markets & Reserve Management. - There are 195 Full Time Equivalent (FTE) in the Banking Supervision Group. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 223. The SBP has implemented Basel III and it is applied to all banks, including Islamic banks. No ### The SBP has implemented Basel III and it is applied to all banks, including Islamic banks. No ### Basel III implementation and prudential framework - The SBP has implemented Basel III and it is applied to all banks, including Islamic banks. - The minimum solvency requirement is 15 percent, including the capital conservation buffer. - There is both an LCR and an NSFR requirement. - The SBP has designated three banks as D-SIFIs. - The SBP has implemented a resolution framework, but there is no requirement for Total Loss Absorbing Capacity (TLAC). - No bank in Pakistan uses internal models. ### Banking sector structural risks and sovereign-bank nexus - Large holdings of government bonds constitute around 60 percent of banks assets, representing a potentially increasing sovereign-bank nexus and a major financial stability risk. - Pakistan has a history of directed and subsidized lending; subsidized facilities at the SBP have been shut down, but pressure on banks to finance arrears in the energy sector has occurred. - Transparency has been increased by capturing the costs of subsidized credit in the budget. ### Government policy to convert to Islamic banking and supervisory implications - The Government’s intention to convert the banking system to an Islamic banking system by the start of 2028 requires planning and close dialogue with the banking sector. - A recent constitutional amendment mandates the elimination of ‘riba’ (interest) from the economy by January 2028. - Key implications and requirements: - Thorough examination and strengthening of banks’ licensing, regulation, and supervision to ensure safety and soundness. - Conversion of government securities is required; converted bonds have to be backed by real assets (market participants note there may not be sufficient real assets to convert all government bonds). - Banks will have to invest substantial resources and need guidance on risk-reduction steps for the economy at large. - The SBP has established the Committee for Transformation of conventional banking into Islamic and several working groups to discuss issues with the banking sector. - Certain exemptions exist (e.g., for foreign banks). - Authorities intend to prepare for the post-2027 financial sector. ### Legal framework, mandate, and macroprudential guidance - The State Bank of Pakistan Act of 1956, amended in 2022, states as the second objective that the SBP, without prejudice to the Bank's primary objective, shall contribute to the stability of the financial system of Pakistan; the primary objective is price stability. - The financial stability objective is further specified in the publication ‘Macroprudential policy framework in Pakistan’ (dated May 12, 2025). - The banking supervision mandate as required by the BCP (Basel Core Principles) is not explicitly stated in primary legislation; BCP requires the primary objective of banking supervision to promote the safety and soundness of banks and the banking system, with other objectives subordinate. - To achieve the financial stability mandate, the Act states the SBP shall license, regulate and supervise banks and financial institutions; resolve banks and other financial institutions; and adopt and implement macro-prudential policy measures for banks and financial institutions. ### Institutional independence, governance, and conflicts of interest - The SBP Act gives the central bank functional and institutional autonomy. - The Board of Directors has ten members: the Governor (who chairs the Board), eight non-executive Directors (including at least one from every province), and the tenth member is the Secretary, Finance Division, Government of Pakistan (the Secretary does not have the right to vote but can speak and ask questions). - Non-executive Directors are appointed for a term of five years and are eligible for re-appointment only for one term of five years. - Presence of a high-level representative from the Ministry of Finance on the Board should be reconsidered due to potential coordination vs. independence concerns; any change requires amendment of the SBP Act. - SBP-owned banks (NBP and ZTBL) are in the process of being transferred from the SBP to the Government by end-June 2025, limiting conflicts of interest. The SBP does not have control over these two banks since the Banks Nationalization Act of 1974 cedes effective control to the government. - Privatization: Government has decided to privatize ZTBL; privatization of NBP has yet to be agreed (privatization could raise issues of access to credit for smallholders depending on form). - Safeguards: Ownership handled by Finance Department reporting to a different Deputy Governor than banking supervisors; board members of state-owned banks are in most cases not affiliated with the Government. - The SBP has two unfilled Deputy Governor positions (since August 2023 and November 2024); vacancies could cause operational inefficiency and leadership gaps. - Appointment and removal rules: - Governor and Deputy Governors must possess recognized integrity, expertise and advanced degree from a recognized university in specified fields with relevant professional experience for at least ten years. - Governor and Deputy Governors are appointed for a term of five years and are eligible for re-appointment only for one term of five years. - Removal allowed only if found guilty of gross misconduct; incapable due to physical or mental incapacity; or does not meet appointment criteria (includes no affiliation with political parties, federal or provincial government, or banks). - There is no requirement to disclose publicly the reasons for removal. - Two out of the last three Governors served their full term; one resigned for personal reasons. The last three Deputy Governors entrusted with banking supervision completed their tenure. ### Accountability, transparency, and supervisory process - SBP publishes and submits an annual report to Parliament and publishes a financial stability report annually. - Parliament may require any senior official to attend a meeting of Parliament. - SBP publicly discloses significant enforcement actions applied to supervised entities. - SBP shares draft prudential regulations with Pakistan Banks Association (PBA) to seek views; SBP consults case-by-case with additional stakeholders. - There is no legal requirement that all regulations and prudential standards are subject to public consultation as required by international standards. - SBP does not regularly publish supervisory objectives, priorities, and planned areas (e.g., annually); end-of-year publication of a record of supervisory work is recommended to improve accountability and understanding of risk-based supervision. - The Banking Companies Ordinance grants wide supervisory powers to the SBP but also allows the Federal Government powers to instruct the SBP to inspect any banking company—this legacy power could compromise operational independence and merits legislative change. ### Regulatory instruments, supervision, and internal procedures - SBP has issued regulations and guidelines for banks (general prudential regulations for commercial banking and sector-specific regulations such as mortgages and agricultural financing). Guidelines are legally enforceable and include licensing and risk management guidelines. - Internal supervisory procedures outline how supervision should be done, including escalation procedures for corrective and sanctioning measures and procedures to examine related party lending. ### Licensing, fit and proper, ownership transfer, and mergers - Licensing legal basis: nobody shall carry on banking business in Pakistan unless it holds an SBP license; Executive Committee grants in-principle approval for issuance/cancellation of banking licenses and acquisition of controlling shareholding. - Licensing activity since January 2020: - SBP has received one application for a banking license (authorization); the application was not approved. - SBP received 20 applications for digital bank licenses; five applicants were awarded No-Objection Certificates (NOCs) to proceed further. - Reasons for denial included financial strength, shareholder experience, business proposition, stakeholder engagement, and other considerations. - Since January 2020, four banking licenses have been revoked/cancelled on account of liquidation, voluntary winding-up, and amalgamation. - Two microfinance banks and two commercial banks have had their licenses surrendered due to change in ownership. - The SBP has cancelled 5 licenses, revoked 2 licenses and withdrawn 13 licenses of exchange companies since 2020. - Digital banks: - New digital banks are subject to a slightly different regulatory regime: lower minimum nominal requirement, but a higher minimum solvency percentage requirement and restrictions on corporate lending. - Care is needed to avoid setting the bar too low; proportionality is allowed under Basel but should not lower supervisory standards. - Fit & Proper and approvals: - SBP has the legal basis and uses it to require fit and proper tests (FPTs) for major shareholders, Directors, Managing Director/Chief Executive Officer, and other specified officers. - FPT criteria include eligibility, integrity, track record & reputation, financial credibility, conflict of interest, and qualification & experience. - From 2020 till March 2025, the SBP has reviewed more than 800 persons; 16 of which were not approved. - Transfer of significant ownership and mergers: - Prospective acquirers must get prior written approval from SBP; assessment varies with shareholding amount and management control sought. - Any individual or entity intending to acquire 5 percent or above sponsor shares in a bank/MFB requires prior approval of the SBP. - Banks cannot invest in the shares of a company over and above 5 percent of Tier-I Capital of the bank; or 10 percent of paid-up shares of Investee Company, whichever is lower. - Three applications for ownership have been approved and two denied since the start of 2020. - Mergers and amalgamations fall under SBP powers; criteria could be clearer, especially regarding checking beneficial ownership to prevent unsuitable owners emerging. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 238. The SBP has powers to address problems in the financial sector, including revoking a ### 238. The SBP has powers to address problems in the financial sector, including revoking a license, and internal procedures specifies a supervisory ladder of applying corrective and sanctioning measures ### Supervisory powers, enforcement practice, and prompt corrective action - The SBP can at any time inspect any banking company and its books and accounts according to the Banking Ordinance. - According to the Banking Ordinance the SBP can issue directions to banking companies generally or to any banking company as it deems fit, and the banking companies or the banking company shall be bound to comply with such directions. - Failure to act in accordance with the Banking Ordinance can result in a fine for the bank, and a fine or imprisonment for individuals. - The SBP has forced a CEO to resign and asked boards to act against management. - The SBP follows a supervisory ladder, including a problem bank manual that sets out prompt corrective action well before a bank becomes insolvent. - The SBP has liquidated banks, but has taken a long time to address banks that failed to meet capital requirements; authorities prefer to resolve undercapitalized banks instead of opting for liquidation. - As of January 2023, four banks were undercapitalized. - The authorities eventually resolved three out of four banks, and the fourth bank is in the process of recapitalization. - The extended process and the associated forbearance could expose the SBP to undesirable outcomes and pressure from stakeholders. - There are clear rules on who prepares and who takes the respective decisions as well as an appellate forum. - There is an internal quality assurance process, and the banks are given the opportunity to contest draft observations. - The SBP publicly discloses significant enforcement actions taken against the regulated entities. - Footnote: In addition several MFBs have been undercapitalized. ### Corporate governance, related parties, and disclosure (Sections 239–241) - Regulatory framework and supervisory practice - The SBP has issued a Corporate Governance Regulatory Framework for the banks, last updated in November 2021. - The SBP has adopted a Risk Based Supervisory Framework focusing on continuous monitoring and onsite assessments, providing operational guidance for assessment of significant activities and governance controls & arrangements (e.g., oversight role and effectiveness of Board of Director, Senior Management and first, second and third line of defense). - Assessment scope: oversight role and performance of Board of Directors, Senior Management, Risk Management, Compliance and Internal Audit Functions; assessments are conducted at both Entity-Level and Activity-Level Controls. - The SBP has issued remuneration guidelines, guidelines on internal capital adequacy assessment process, and guidelines on control functions including on compliance, risk management and internal audit. - Related party exposures and consistency with BCP - The Companies Act 2017 includes definitions and many restrictions on transactions with related parties, but they should be made fully consistent with the BCP. - The SBP can regulate and supervise transactions with related parties and has used these powers; there are several examples of supervisory actions in this area. - Aggregate exposure to related parties must not exceed 7.5 percent of the bank’s total capital. - Deviations from the BCP: - Beneficial owners and all parties that can exert significant influence on board members or senior management are not included. - Off-balance sheet and derivative transactions are not included. - The specification of related parties and associated transactions is scattered across legislation. - Disclosure and transparency - The SBP has prescribed a format for annual and interim financial statements for banks, including detailed information on non-performing loans and securities holdings, lending to related parties as well as regulatory metrics as required under the BCP. - The SBP publishes detailed data on the financial situation of banks and has the right to publish any information on a specific bank. ### Table 10 — Recommendations on Financial Sector Oversight (as presented) - 1. Change the SBP act to remove the Secretary of the Ministry of Finance from the Board of Directors and require that the reasons for removal of the Governor, Deputy Governors, and Non-executive Directors are published. - Responsible Authority: SBP, Ministry of Finance, Parliament - Action Objective: Independence of SBP - Timeline: MT - 2. Fill the two vacant deputy governor positions and ensure that such positions are not left vacant for extended periods. - Responsible Authority: SBP and Ministry of Finance - Action Objective: Ensure collective decision-making - Timeline: ST - 3. Revise the objective of banking supervision in the law, so that it is fully consistent with the BCP, i.e. ”promote the safety and soundness of banks and the banking system.” Establish legal requirement for the SBP to consult publicly on new regulations and prudential standards. - Responsible Authority: SBP, Ministry of Finance, Parliament - Action Objective: Alignment with international standards - Timeline: MT - 4. Change the Banking Ordinance by removing the Ministry of Finance power to instruct the SBP on inspections. - Responsible Authority: SBP, Ministry of Finance, Parliament - Action Objective: Independence of SBP - Timeline: MT - 5. Complete the planned shift of the SBPs ownership of two financial institutions to the Government. - Responsible Authority: SBP - Action Objective: Alignment with International Standards - Timeline: ST - 6. Consolidate and make the requirements on related party transactions consistent with the BCP. - Responsible Authority: SBP - Action Objective: Alignment with International Standards - Timeline: ST - 7. Publish SBPs objectives, priorities and plans for supervisory activities and when the year is over publish information on the conducted activities. - Responsible Authority: SBP - Action Objective: Transparency - Timeline: MT - 8. Ensure that corrective and sanctioning framework are used at an early stage, including for solving issues of undercapitalized banks. - Responsible Authority: SBP - Action Objective: Alignment with International Standards - Timeline: ST - 9. Ensure that the Committee for Transformation with the support of the government create clarity on the post 2027 financial system - to ensure a common understanding with banking system in the transition to Islamic banking and in addressing key challenges. - Responsible Authority: SBP - Action Objective: Transparency - Timeline: MT ### AML/CFT context and effectiveness (Sections 242–254) - High-level summary - A well-performing AML system requires an enforceable legal framework, autonomous and capable institutions, risk-based effective supervision, timely actionable financial intelligence, inter-agency coordination, accountability through prosecution and sanctioning, and effective international cooperation. - The chapter assesses these elements in Pakistan, focusing on effectiveness in addressing laundering of corruption proceeds. - Recent reforms and persistent challenges - Pakistan has taken steps to enhance financial sector oversight in line with AML/CFT priorities; reforms improved risk-based supervision by financial regulators. - The SBP conducts targeted on-site and thematic inspections focusing on high-risk areas such as PEP onboarding and STR generation. - The SECP has streamlined beneficial ownership data collection, including development of an electronic portal for reporting entities to obtain BO information. - The 2023 National Risk Assessment (NRA) identifies corruption as a major predicate offense for money laundering; high-risk sectors include banking, real estate, construction, PEPs, and public procurement. - Misuse of corporate vehicles, shell companies, and informal value transfer systems are prevalent techniques to conceal origins of corruption proceeds. - Implementation challenges remain in institutional coordination, enforcement of preventive measures, and operational follow-through; limited evidence exists of proactive detection and disruption of corruption-related ML in the most vulnerable sectors (public procurement, SOEs, real estate). - Legal reforms (including AMLA 2010 as primary legislation) have clarified mandates and operationalization efforts for the National AML/CFT Authority; alignment of predicate offences with UNCAC-listed acts of corruption (including foreign bribery) needs focus. - Institutional roles (Table 11 summary) - Financial Monitoring Unit (FMU): financial intelligence unit; receives, analyzes, disseminates STRs and CTRs; coordinates with LEAs and regulators. Reports to Ministry of Finance. - National AML/CFT Authority: leads national coordination; oversees NRA and strategic reforms. Reports to Prime Minister / Cabinet. - State Bank of Pakistan (SBP): supervises banks and money service businesses for AML compliance; issues regulations and enforces penalties. Reports to Ministry of Finance / SBP Board. - Securities and Exchange Commission of Pakistan (SECP): supervises capital markets, insurance, and companies for AML compliance; responsible for beneficial ownership regime. Reports to Ministry of Finance. - Federal Board of Revenue (FBR): supervises DNFBPs; collects financial intelligence via tax filings. Reports to Ministry of Finance. - National Accountability Bureau (NAB): investigates and prosecutes corruption offenses, including related money laundering. Reports directly under the Prime Minister; semi-autonomous. - Federal Investigation Agency (FIA): investigates money laundering offenses under AMLA 2010 and other financial crimes; handles cross-border cases. Reports to Ministry of Interior. - Ministry of Law and Justice: handles mutual legal assistance, legislative reform, and legal review. Reports to Federal Cabinet / Parliament. - Judiciary / Accountability Courts: adjudicate money laundering and corruption-related cases; issue orders for freezing/confiscation. Independent (per Constitution). - Oversight, accountability, and enforcement outcomes - There is no clear framework to assess the performance of authorities in preventing money laundering specifically related to corruption. - The AML Act established two inter-agency committees: National Executive Committee (NEC) for policy and General Committee (GC) for operational issues; upon formation of the National AML/CFT Authority in 2023, many oversight functions of NEC and GC are now carried out by the Authority. - The FMU seeks quarterly feedback from LEAs, including NAB, on disseminated corruption-related financial intelligence, but it is unclear whether oversight functions pay specific attention to follow-up on such disseminations. - Statistics on the number of corruption-related financial intelligence that have led to enforcement action or prosecution are low; quarterly meetings are held between NAB, the FMU, and the National AML/CFT Authority to discuss disseminations but it is unclear if material decisions were made to advance corruption-linked disseminations. - Pakistan issued the AML/CFT Sanctions Rules, 2020 under the AMLA. These Rules provide broad enforcement policy requirements including maximum amounts of penalties and requirement for publishing significant enforcement actions. - Enforcement activity (2023-2024 period): monetary penalties more than PRs 944 million were imposed against 17 banks for AML/CFT related gaps; disciplinary actions were taken by 10 banks against 225 employees after internal inquiries. - DNFBPs fines totaled to more than PRs 2.6 million during the same period. - Available data on sanctions imposed for AML violations—particularly related to corruption risks—is fragmented. - Public trust, impartiality, and institutional integrity - Public concerns exist regarding impartiality and selective enforcement of AML obligations, particularly when PEPs or high-level officials are involved. - Other jurisdictions have instituted independent review mechanisms to enhance oversight and restore public trust; Pakistan could benefit from a similar model. - During Pakistan’s FATF grey listing, AML/CFT presentations were made to the National Assembly related to updating legislation, but the National Assembly never requested to discuss institutional integrity of AML/CFT bodies. - Alignment with FATF and resourcing of National AML/CFT Authority - The SBP and SECP are aligning with FATF standards and working with the FMU to improve reporting quality and risk profiling. - The FMU has enhanced analytical capabilities and responsiveness, including automated prioritization analytics that allocate additional weightage for corruption-related indicators (PEP status, tax discrepancies, mismatches in wealth, use of family accounts, large cash transactions). - The NRA 2023 update has guided priority-setting and improved feedback loops between the FMU and reporting entities. - The National AML/CFT Authority’s role is still evolving; it requires additional resources to enforce compliance across institutions or to coordinate effective cross-agency task forces targeting laundering of corruption proceeds. - Coordination mechanisms (joint task forces, MOUs) exist but require formal accountability and reporting requirements; it is unclear whether Pakistan’s mechanisms deliver results comparable to standing inter-agency AML/CFT task forces used in other jurisdictions. - Overall assessment - Pakistan’s AML institutional structure includes necessary components and has achieved operational milestones, but effectiveness can be further enhanced by improving institutional autonomy, oversight, and system-wide accountability. - To tackle laundering of corruption proceeds effectively, Pakistan needs to enhance the independence of key actors, enforce sanctions consistently, and improve coordination across regulatory and enforcement institutions. - Additional insights from relevant authorities are required to assess the precise extent of gaps and identify feasible pathways for reform. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | excerpt* ### 255. Pakistan’s authorities have formally recognized corruption as a significant predicate ### 255. Pakistan’s authorities have formally recognized corruption as a significant predicate ### Recognition and institutional response - The 2023 NRA outlines corruption as a major threat to the integrity of the financial system. - Institutional responses appear fragmented and insufficiently resourced. - Evidence that agencies have developed operational strategies, allocated staff, and directed financial resources specifically to address corruption-related ML risks remains limited. - The authorities’ ability to translate this risk understanding into meaningful action varies considerably across institutions. ### Risk-based supervision and data constraints - Adequate implementation of the risk-based approach varies across institutions; most supervisory bodies do not appear to publish sector-specific plans or operational guidelines that prioritize laundering of corruption proceeds. - The SBP’s supervisory risk assessments rate PEPs as higher risk and expect enhanced due diligence by regulated entities. - The SECP, as custodian of the national corporate registry and beneficial ownership information for legal persons, implements enhanced due diligence when PEPs are identified in the basic information register; it is unclear if the SECP follows a similar approach for other sectors such as real estate and government contracting. - Lack of disaggregated data hampers effective monitoring and resource reallocation: - Supervisory and enforcement agencies do not appear to collect or publish disaggregated statistics on corruption-linked STRs, inspections, investigations, or sanctions. - The National AML/CFT Authority collects statistics for all ML predicate offenses, but these are not operationalized into periodic reports breaking down cases linked to corruption. - Capacity constraints: - The FBR’s capacity to supervise DNFBPs is particularly constrained given the number of entities under its remit and limited staff for inspections and outreach. - Some DNFBPs, especially in real estate, are considered high-risk for facilitating corruption-based laundering. ### Public sector-related financial flows and procurement risks - Public procurement is widely recognized as a corruption-prone environment in Pakistan; Auditor General reports point to irregularities at central and provincial levels. - Gaps remain in systematically addressing financial flows from government-linked entities or contracts despite digitalization efforts (including payments). - Comparative examples cited where heightened scrutiny improved detection: - South Africa: banks were instructed to (i) apply enhanced due diligence to SOEs and politically exposed contract and (ii) monitor transactions involving public procurement; FIC guidance includes typologies on laundering through tenders and subcontracting. - Ukraine: AML reforms included (i) enhanced scrutiny of government expenditure accounts and SOE-linked financial flows and (ii) regular typology bulletins from FIU-Ukraine on red flags in public procurement schemes. ### Cross-institutional coordination and typologies - NRA-related committees jointly assess evolving threats, typologies, or vulnerabilities related to ML, but additional focus is needed on laundering the proceeds of corruption and inclusion of additional stakeholders in the NRA process. - Multi-agency typology studies are required; FMU has published helpful cases related to laundering the proceeds of corruption. - Pakistan’s risk understanding is conceptually sound but evolving operationally; gaps exist between prioritization in the NRA and corresponding supervisory or enforcement activities (SBP noted as exception). - Addressing gaps will require: - Stronger cross-sectoral coordination, - Improved data collection, - More robust targeting of resources, - Clear guidance on sector-specific typologies. - The National AML/CFT Authority’s mandate includes addressing these gaps. ### Beneficial ownership (BO) framework and challenges - BO regime status and access: - SECP is responsible for overseeing the BO framework but is yet to establish a registry to maintain BO information. - BO information is currently accessed via legal persons who must make BO information available within 48 hours. - A declaration form is submitted to SECP which doesn’t include UBO information but identifies a focal point with contact details that can provide the information. - SECP established a dedicated portal where the FMU, some LEAs, and banks may submit requests for BO information; DNFBPs do not currently have access to the portal. - S.R.O. 1356(I)/2025 (July 2025) requires submission of beneficial ownership data electronically for the financial year ending in June 30, 2025. - Verification and enforcement: - SECP requires declarations at incorporation, upon ownership change, and annually, but actual BO information is not declared and systematic verification or auditing is limited. - Sanctions for non-compliance exist, and SECP publicly reports enforcement activity via its website, but it is unclear whether repeat offenders face escalated enforcement. - Public access and transparency: - Public access to BO data is not immediately available; the public may submit a Form-19 Declaration but approvals are rare. - BO data is not publicly available generally; data privacy laws were amended to avail BO information to law enforcement agencies. - E-PADS mandates that BO information of winning bidders are to be made publicly available. - Scope and complexity: - Foreign ownership is permitted; 1700 entities incorporated in Pakistan have foreign shareholders holding more than 25 percent based on the SECP database. - Challenges exist in identifying BO of complex or foreign-controlled structures, nominee arrangements, and control relationships below quantitative thresholds. - Coordination on BO use: - FMU can access BO information, but additional authorities need access. - Pakistan may benefit from institutionalizing a multi-agency working group to review BO data in support of corruption investigations. ### Generation and use of financial intelligence (STRs, PEPs, typologies) - Framework requirements: - Reporting entities (banks, MSBs, DNFBPs) are required to implement risk-based CDD, conduct EDD on PEPs, and file STRs. - PEP identification: - Guided by regulatory requirements from SBP, SECP, and FBR. - EDD measures include senior management approval, establishing source of wealth, and ongoing monitoring. - FBR’s online platform (Sharing of Declaration of Assets of Civil Servants Rules, 2023) enables banks to obtain information on civil servants (BPS 17 and above). - Financial institutions regulated by SBP have deployed system-based solutions for PEP identification including members of parliament and senators. - Other institutions largely responsible for developing their own internal systems beyond official lists; absence of automated screening tools in smaller institutions. - Authorities may consider issuing more robust corruption-specific red flag indicators. - Typologies and guidance: - FMU has issued STR guidance and red-flag indicators, but reporting institutions have limited access to typologies reflecting laundering methods common in Pakistan. - Comparative examples of sectoral red flag indicators: - Canada’s FINTRAC: indicators for (i) transactions involving government contracts, municipal procurement, and PEP-related behavior, (ii) use of corporate entities or consultants in public sector schemes, and (iii) layered payments, rapid contract turnover, and unexplained wealth accumulation in low-salary public roles. - Colombia’s FIU: sectoral indicators targeting (i) healthcare procurement during COVID, (ii) SOE-linked laundering via construction firms and extractive industries, and (iii) payments routed through regional entities to avoid detection. - Pakistan requires financial institutions to seek approval via an FBR platform when dealing with senior federal officials (BPS 17 and above), members of parliament, and senators. - Feedback and reporting quality: - FMU engagement includes periodic AML/CFT focused forums, one-on-one meetings, feedback on STR quality, issuing guidelines, sharing typologies, and sharing strategic analysis reports. - FMU does not provide systematic updates on the outcome of corruption-related STRs submitted by reporting entities; absence of structured feedback loops reduces incentives for proactive reporting and institutional learning. - Technological capacity: - Larger financial institutions have more advanced automated transaction monitoring systems. - Smaller financial institutions and many DNFBPs rely on manual processes or lack meaningful systems. - The technological divide hampers consistent enforcement and identification of complex corruption-related laundering schemes. - Capacity-building: - Authorities are regularly conducting capacity-building programs for DNFBPs to enhance understanding and effective implementation of AML/CFT measures. ### Public sector transparency and asset declarations - Digital asset declaration systems operated by the FBR are in use; declarations are not currently verified. - The National Assembly is reviewing legislation to mandate the FBR to establish a verification mechanism including risk-indicators flagging officials who approve procurement, customs decisions, or have undergone sudden high enrichment. - Integration of declaration data with enforcement bodies remains under development, but joint task forces and training efforts have improved FMU access to asset declaration information. ### Inter-agency coordination and systemic coherence - Effective AML/CFT requires robust coordination across supervisory, investigative, intelligence, and judicial institutions; lack of operational synergy hampers detection and response to complex corruption-linked ML schemes. - Multiple actors exist with distinct mandates: FMU, National AML/CFT Authority, sectoral regulators (SBP, SECP, FBR), and investigative bodies (NAB, FIA). - The establishment of the National AML/CFT Authority in 2023 significantly improved coordination; further effectiveness is expected if improvements are sustained over a prolonged period. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | Extracted content from the provided source* ### 278. Formal coordination mechanisms exist but are underutilized. The AMLA 2010 provides for ### 278. Formal coordination mechanisms exist but are underutilized. The AMLA 2010 provides for ### Coordination mechanisms and operational use - AMLA 2010 establishes two high-level inter-agency bodies: - National Executive Committee (NEC): addresses policy matters. - General Committee (GC): focuses on operational coordination. - GC mandates review of financial intelligence and can request updates from enforcement agencies, but its effectiveness is limited by: - Lack of regular, detailed performance reviews. - Limited focus on corruption-related laundering. - National AML/CFT Authority established in 2023 improved operational coordination, including quarterly data collection exercises from the authorities. - Quarterly meetings between the FMU, NAB, and the National AML/CFT Authority review STR disseminations, but there is limited evidence these discussions produce tangible enforcement outcomes or improved typology development. ### Information sharing and technical interoperability - Information sharing across agencies is inconsistent and often ad hoc. - FMU disseminates financial intelligence and has access to BO information, yet: - Little evidence that LEAs consistently follow up or use this intelligence to guide broader risk assessments. - Absence of a central case-tracking platform and lack of a unified risk database impede alignment of operational priorities across regulators, investigators, and prosecutors. - Coordination between regulatory agencies (e.g., SECP and FBR) is hindered by sectoral silos and limited interoperability of IT systems and data standards. - FMU uses GoAML software to disseminate financial intelligence to LEAs using a unique identification number (UIN), used for all future correspondence between FMU and LEAs. ### Institutionalization efforts and gaps - National AML/CFT Authority has a mandate to lead system-wide coordination and policy alignment but requires strengthening in staffing and resourcing. - Memoranda of understanding and joint task forces exist in select cases, but a well-established framework with formal terms of reference, dedicated leadership, and performance indicators is lacking. - Recommendation: adopt standing inter-agency AML/CFT task forces with mandates to: - Jointly review case outcomes. - Identify systemic typologies (notably in procurement, SOEs, and real estate). - Produce actionable recommendations. - Potential blueprints cited: UK’s Joint Money Laundering Intelligence Taskforce (JMLIT) and the Netherlands’ Financial Expertise Centre. ### Investigative and prosecutorial capacity: findings - NAB and FIA share mandates to investigate and prosecute corruption and associated ML: - NAB has jurisdiction over corruption cases above PRs 500 million. - FIA deals with cases below the threshold. - Few cases have resulted in convictions or significant asset recovery. - Investigative capacity constraints: - Lack of specialized expertise (forensic accounting, data analysis, asset tracing). - NAB and FIA often lack sufficient trained personnel for complex, layered investigations (offshore accounts, shell companies). - Case management and inter-agency cooperation are fragmented: - No unified case tracking system; absence undermines transparency and oversight. - Information sharing between investigative bodies, the FMU, SECP, SBP, and FBR is not systematically institutionalized. - Use of financial intelligence in investigations is limited: - Little data on extent to which FMU disseminations are acted upon. - Anecdotal evidence suggests some leads remain un-investigated due to low risk ratings, limited staff, or absence of downstream capacity. - NAB states cases proceed following verification, investigation, and filing of the reference on evidential material, suggesting a risk-based approach aligned to the NRA is lacking. - Legal barriers to prosecuting standalone ML offences: - Section 3 of the AML Act: definition of ML is ambiguous and states ML occurs when the proceeds of a crime are laundered. - Although legal explanation indicates prior conviction is not needed, the definition itself implies a predicate offence must be present, which authorities consider a barrier to referrals and convictions. - Result: conviction rates for ML offences could be higher relative to the country’s risk profile. - Judicial constraints: - Delays in prosecution, lengthy trials, and low conviction rates weaken deterrence. - High-profile or politically sensitive cases often face external interference, limiting independence and public confidence. - For corruption-linked ML complaints, NAB’s turnaround time is within 4-months to open a formal enquiry; complaints must undergo rigorous administrative verification which may result in non-investigation. - Mutual legal assistance (MLA) and asset recovery: - Pakistan has initiated MLA requests and asset recovery efforts in select cases, with limited success. - Challenges: staff capacity, weak international networks, procedural delays. - Noted need to improve coordination with key capital flight jurisdictions and to sign bilateral agreements to ensure legally accurate and prioritized requests. - Recommendation: pursue membership in the Egmont Group of FIUs to facilitate information sharing. ### Systemic barriers and needs - Law enforcement faces systemic barriers to investigating and prosecuting corruption-related ML. - Crucial priorities: - Strengthen technical capacity. - Improve inter-agency coordination. - Insulate investigations from political interference. - Obtain information from NAB, FIA, and the judiciary to evaluate caseloads, success rates, and resource needs. ### Table 12 — Recommendations on AML/CFT (selected actions and objectives; timelines preserved) - 1. Issue circular mandating relevant agencies (including FMU, SECP, FBR, FIA, NAB) to align supervision, STR review, inspection planning, outreach, and enforcement efforts with the corruption-related risk priorities highlighted in the NRA and Pakistan's GCD. - Responsible Authority: National AML/CFT Authority - Action Objective: Ensure that AML/CFT resources across supervision, financial intelligence, and enforcement are targeted at sectors, actors, and typologies that present the highest risk of laundering corruption proceeds, as identified in the NRA and other strategic analyses. - Timeline: MT - 2. The real estate sector’s vulnerability to ML related to corruption is decreased as a result of improved oversight and preventive measures. - Responsible Authority: National AML/CFT Authority - Action Objective: Improve supervision and preventive measures to mitigate risks arising from the sector’s current vulnerabilities. - Timeline: LT - 3. Money laundering offenses are consistently prosecuted as standalone crimes, without requiring a predicate conviction. - Responsible Authority: Ministry of Law & Justice - Action Objective: Remove legal ambiguity in Section 3 of the AMLA 2010 and enable more flexible and timely prosecution of ML cases, particularly where predicate corruption offenses are difficult to prove. - Timeline: MT - 4. Pakistan secures improved cooperation on asset recovery through bilateral MLA frameworks with high-risk capital flight jurisdictions. - Responsible Authority: NAB/FIA - Action Objective: Increase the success rate and timeliness of mutual legal assistance requests by formalizing cooperation, such as through targeted memorandums of understanding, with jurisdictions where corruption-linked assets are often held. - Timeline: MT - 5. An operational, accessible, and verified beneficial ownership registry supports law enforcement and regulatory investigations. - Responsible Authority: SECP - Action Objective: Improve transparency of legal persons, enable systematic verification of BO data, and ensure timely access for competent authorities investigating laundering of corruption proceeds. - Timeline: MT - 6. Standing inter-agency task forces identify systemic ML risks linked to corruption and coordinate responses through typology sharing. - Responsible Authority: National AML/CFT Authority - Action Objective: Institutionalize joint analysis of corruption-linked ML cases, align typology development across agencies, and strengthen operational coordination in line with international best practices. - Timeline: MT - 7. Financial intelligence related to corruption are systematically followed up, with actionable feedback provided to reporting entities and LEAs, including by maintaining statistics of corruption-related disseminations that have led to enforcement action or prosecution. - Responsible Authority: FMU - Action Objective: Strengthen the operational utility of financial intelligence, improve risk understanding among reporting entities, and enable LEAs to initiate timely financial investigations based on financial intelligence. - Timeline: MT - 8. A unified digital platform allows real-time tracking and exchange of corruption-linked AML cases across enforcement and judicial bodies. - Responsible Authority: NAB / Ministry of Interior - Action Objective: Improve transparency, avoid duplication, and accelerate investigations and prosecutions through shared access to case status and evidence trails across institutions. - Timeline: MT - 9. NAB and FIA conduct complex ML investigations with improved capacity and specialized AML units. - Responsible Authority: NAB / FIA - Action Objective: Enhance investigative effectiveness and the ability to trace, document, and prosecute sophisticated laundering schemes tied to corruption through resource and skills upgrading. - Timeline: MT ### Rule of Law — contextual indicators (selected) - Pakistan backlog: over 2 million legal cases waiting to be resolved. - Worldwide Governance Indicators (WGI): Pakistan placed in the 21st percentile globally for rule of law in 2023. - V-dem judicial corruption sub-indicator (2024): - Pakistan score: –1.84 - South Asian average: –0.34 - Global average: 0.19 - Transparency International Pakistan National Corruption Survey (2021–2023): respondents consistently viewed the judiciary as one of the most corrupt sectors, along with the police and public procurement. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic | excerpt* ### 295. Contracts, often defined as an agreement between parties creating mutual obligations ### 295. Contracts, often defined as an agreement between parties creating mutual obligations ### Role of contracts and enforcement challenges - Contracts enable parties to plan and commit resources in the expectation that their agreement will be maintained; enforcement of contract rights ensures that the value of investments made based on the agreement is protected. - Economic activity shrinks as contract rights get weaker, as parties take steps to limit the risk that an agreement will be broken (for example, only making agreements with family members or finding extra-judicial means to compel contract performance). ### Court structure and case backlog (Pakistan) - Cases involving contract disputes are heard across a variety of courts; the largest proportion of contract-dispute cases are reasonably certain to be heard at the district court level. - Appeals to district court decisions and requests for stays are heard at the Provincial High Court; the Supreme Court is the apex court for civil and specialized courts. - Current mechanisms face extensive delays across all forums. Data from 2023 shows the Pakistan legal system was unable to handle the volume of cases that entered the system in total and at every level (with the sole exception of Federal Shariat courts). - Neither court structure was able to reduce the stock of pending cases, which ballooned to over two (2) million. - Table of Federally Administered Administrative Tribunals and Special Courts, 2023 (as reported) - Punjab — No. of courts: 58; Previous Pendency: 52,628; Institution: 42,660; Disposal: 40,389; Pendency: 56,637 - Sindh — No. of courts: 43; Previous Pendency: 26,886; Institution: 15,850; Disposal: 15,283; Pendency: 27,873 - KP — No. of courts: 18; Previous Pendency: 4,320; Institution: 4,924; Disposal: 4,214; Pendency: 5,530 - Balochistan — No. of courts: 4; Previous Pendency: 557; Institution: 511; Disposal: 346; Pendency: 678 - Islamabad — No. of courts: 22; Previous Pendency: 36,834; Institution: 14,707; Disposal: 14,152; Pendency: 37,393 - Total — No. of courts: 145; Previous Pendency: 121,225; Institution: 78,652; Disposal: 74,384; Pendency: 128,111 ### Structural fragmentation and inconsistent adjudication - Multiple specialized forums exist: Banking Courts; the Company Benches of the High Court (Provincial); newly established Commercial Courts; Intellectual Property Tribunals; Insurance Tribunals; and Customs Appellate Tribunals. - Multiplicity of forums can lead to jurisdictional conflicts (e.g., a loan-default dispute may involve Banking Courts, civil courts, and Company Benches), causing delays due to jurisdictional objections, transfers, and uncertainty about the appropriate forum. - Lack of uniform standards across civil courts, administrative tribunals, and special courts leads to inconsistent adjudicatory practices and procedural confusion, increasing appeals and undermining judicial predictability. - World Bank Business Ready assessment: Pakistan received a score of 26.4 out of a possible 100 points on the "Dispute Resolution" topic; this was substantially below the median score of 35.2 of the lower income group assessed. ### Economic impacts and corruption vulnerabilities - Delays and judicial uncertainty increase the costs of financing or investment projects (for example, contingencies for higher legal fees) and constrain business opportunities to firms with higher risk tolerance or those able to compel performance by non-judicial means. - Protracted litigation delays the implementation of investment projects and the realization of expected benefits. - Delays and multiplicity of courts raise corruption vulnerabilities: parties are encouraged to offer bribes to speed up adjudication, to further delay proceedings, or to obtain a more favorable forum or judge. ### Outdated legal framework and insolvency challenges - Contract enforcement is governed mainly by legacy statutes: the Contract Act of 1872 and the Code of Civil Procedure, 1908; these instruments have seen limited substantive reform and are increasingly misaligned with contemporary commercial practices. - The Contract Act does not adequately address multi-tiered financing arrangements, digital transactions, or cross-border obligations; the Code of Civil Procedure lacks effective safeguards against procedural delay and strategic litigation. - Comparative note: the UK supplemented common law with targeted statutory interventions (for example, Misrepresentation Act 1967; Unfair Contract Terms Act 1977; Contracts (Rights of Third Parties) Act 1999) to address gaps that Pakistan’s statutes do not address equivalently. - Recent initiatives in Pakistan include amendments to procedural laws, ongoing work to update commercial statutes, and development of ADR mechanisms supported by Pakistan’s accession to the Singapore Convention on Mediation—reflecting incremental modernization. - Bankruptcy and insolvency: - Reforms such as the Corporate Rehabilitation Act, 2018, and amendments to the Companies Act, 2017, introduced modern restructuring mechanisms, but practical implementation has faced hurdles. - Limited judicial capacity to address insolvency disputes, especially for SMEs and corporate restructurings, contributes to delays and backlogs. - Need for enhanced training for judges in complex commercial disputes; lack of specialized judicial knowledge undermines reliability of enforcement. - A robust insolvency system is necessary to redeploy inefficient assets and support firm creation through market-based outcomes balancing creditors, owners, and stakeholders. - Recommended focus: modernize bankruptcy laws, enhance the efficiency of insolvency processes, and provide better protection for creditors to broaden the population that benefits from contracts and to foster a more reliable, business-friendly legal environment. ### Enforcement of property rights and land administration - Effective protection of property rights requires a cohesive, streamlined legal and institutional framework for land administration, timely resolution of land disputes, and publication of land data in a central, publicly accessible place. - Key factors undermining property rights: outdated legal frameworks; the political economy of land; fragmentation in land administration; weak dispute resolution mechanisms due to protracted litigation and backlogs; and expropriation risks. - World Economic Forum’s 2019 Global Competitiveness Index ranked Pakistan 108 out of 141 countries on the quality of its land administration system. - Fragmentation and delays: - Land management is primarily provincial; coordination between provincial and federal authorities on land policy, administration, and governance remains limited. - Boards of revenue in each province handle land administration, land revenue, land records preparation, and adjudication of land disputes. - World Bank identified widespread land rights-related litigation, overlapping land titles, and incomplete land records, contributing to procedural hurdles that hinder access to financing and increase transaction costs. - Revenue courts performance (Punjab study, April 2020–June 2021): - 155,332 cases were instituted; 58,106 cases were disposed of within the same period (approximately 39 percent). - Performance of appellate revenue courts: 24 percent of cases were resolved at the appellate forum for the same period. - Digitization and disparities: - Some provinces (Punjab and Sindh) have made notable progress digitizing land records; other provinces remain at earlier stages. - Disparities in digitization undermine security of property rights due to incomplete records, concerns over data accuracy, and questions about integrity of land registration. - Federal dimension and transparency concerns: - Lack of clarity in ownership of state land and opaque processes for recording transfers among state entities and to/from private entities create opportunities for mismanagement, favoritism, and corruption. - The Constitution contains provisions protecting private property rights; the Land Acquisition Act of 1894 regulates expropriation for “public purpose” (broadly defined). - Expropriation concerns remain high; the State Bank of Pakistan (2018-2019 Annual Report) identified expropriation as a significant impediment to foreign direct investment and noted investor concerns about adequacy of protections. - A leading European credit insurance agency ranked Pakistan among countries with the highest expropriation risk in the region. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 315. Recent economic undertakings have increased the federal government’s involvement in ### 315. Recent economic undertakings have increased the federal government’s involvement in ### Federal involvement in land markets - Growth of large-scale mining and expansion of corporate farming have increased federal authorities’ role in undertakings with large consequences for land markets. - Policy intent: attract investment and modernize agriculture. - Risk noted: these efforts “underscore the need for clearer governance frameworks and safeguards to ensure that their actions do not serve to undermine the security of property rights of current owners.” ### Recommended approaches for transparent land governance - Establish and publish clear, rule-based procedures for the transfer of state-owned land: - Applies to transfers both between government entities and between the state and private actors. - Objective: reduce ambiguity and limit unchecked discretionary authority. - Create a centralized, accurate, and publicly accessible database of all state-owned properties and non-financial assets: - Expected benefits: build investor confidence, curb corruption, support development of a more inclusive and efficient land market. ### Judicial independence, integrity, and effectiveness — overview - The chapter shifts focus from legal and organizational frameworks to judicial performance: interpretation of laws and settlement of judicial matters determine rule of law strength. - A credible, capable, and impartial judiciary is essential to the rule of law; independence, ethical standards monitoring, and court efficiency monitoring are key determinants of judicial performance and public standing. ### Governance challenges and public trust - Ongoing challenges: - Allegations of external influence in politically sensitive cases. - Persistent case backlogs. - Resource limitations. - Corruption at lower levels. - Public perception: the judiciary is “consistently identified in public surveys as one of the most corrupt state functions,” indicating low trust in current judicial practices. - Recommendation theme: strengthen governance structures, enhance procedural transparency, and apply judicial standards consistently to reinforce rule of law and access to impartial dispute resolution. ### Complicated structure of the Pakistan judiciary — facts and scope - Constitutional structure: - Federal courts: Supreme Court and the Federal Shariat Court. - Provincial courts: High Courts and District Courts. - As of 2024, it is estimated that there are “more than 3,000 courts in Pakistan, inclusive of federal, provincial and administrative tribunals and special courts.” - Administrative Tribunals and Special Courts: - Can be established by both federal and provincial governments. - Intended to support economic activity (competition, taxation, corruption, banking). - Overlap: “Cases involving similar issues are heard both in regular courts as well as in Special Courts.” - Two types: those within Federal Jurisdiction with presence in provinces, and those established under Provincial Law. - Supervision: various ministries at the federal level and various departments at the provincial level. - Current count: “over 324 Administrative Tribunals and Special Courts working under the administrative control of federal and provincial governments.” ### Fragmented governance and appointments - Fragmented judicial governance: - Appointment, oversight, and integrity monitoring responsibilities are spread across many entities. - Judicial Commission of Pakistan (constitutional body): appoints judges to the Federal Supreme Court and Provincial High Courts, but has no role in district court appointments (Provincial High Courts are responsible). - No formal institutional framework linking governance of regular courts and Administrative Courts/Special Tribunals. - Appointment process concerns: - Administrative Tribunals and Special Courts often established by specific legislation, creating uncertain formal relationships with ministries. - Example: Accountability Court adjudicator appointments are done by the Ministry in consultation with the Chief Justice of the relevant court. - Appointments for Tribunals and Special Courts often occur outside regular judicial appointments, lacking published selection criteria, transparent merit-based processes, and consistent tenure/disciplinary oversight. ### Recent constitutional change and implications - The 26th Constitutional Amendment (2024): - Changed appointment process for the Chief Justice (nomination by Special Parliamentary Committee with representation from women and minorities). - Expanded the number of members in the Judicial Commission of Pakistan. - Intended aims: broaden participation and enhance inclusivity. - Stakeholder concerns: “absent adequate safeguards, the reforms could be perceived as heightening potential risks to judicial independence.” - Suggested measures to reinforce confidence in appointments: - Codify clear and objective selection criteria for judges. - Adopt transparent, evidence-based evaluation procedures. - Integrate integrity and ethics screening as a systematic component of a merit-based process. ### Judicial integrity and accountability - Key elements of well-performing judicial systems: - Clearly established principles to guide judicial behavior. - Mechanisms to monitor compliance with ethical rules. - Processes to hold judges accountable when rules are violated. - Pakistan’s current framework: - National Judicial Policy (2009) sets broad principles (judicial Code of Conduct adherence, reduction of backlogs, oversight via the Supreme Judicial Council (SJC)). - These provisions are largely discretionary and lack a formal statutory framework. - SJC provides a constitutional/procedural framework for accountability of judges of superior courts, but absence of an independent, rules-based oversight mechanism contributes to perception of impunity, especially within the higher judiciary. - International comparison: - United Kingdom’s Constitutional Reform Act 2005 established the Judicial Conduct Investigations Office (JCIO), independent of judiciary and executive, accepts public complaints, and publishes outcomes—provides procedural transparency and public accountability. - Pakistan lacks comparable institutionalized mechanisms, contributing to inconsistent enforcement of judicial standards and weakened checks and balances. ### Fragmented oversight framework - Oversight responsibilities are divided: - A constitutional body oversees the Supreme Court (Supreme Judicial Council composition noted in Constitution). - Provincial High Courts oversee provincial courts, including district courts. - Ministry of Law and Justice administers some Administrative Tribunals and Special Courts. - Result: siloed mechanisms, overlapping mandates, uncoordinated initiatives (e.g., digitalization and case management), and inefficiencies. ### Judicial efficiency and case backlog - Importance: Effective judicial performance supports accountability, public trust, and stable environment for investment. - National Judicial Policy (2009) objectives: improve judicial administration efficiency, establish performance standards, ensure regular publication of annual reports by superior and subordinate courts. - Implementation gap: the policy’s operational effectiveness has been limited due to inconsistent implementation and lack of sustained oversight. - 2023 performance data: - Systemic inability to handle volume of new cases or make in-roads in backlog of old cases. - Backlog “stood at over 2,000,000 cases by the end of 2023.” - Federal Shariat Court’s reduction in pending cases is noted as a positive example for replication. - Administrative Tribunals & Special Courts (2023): - Substantial variation in performance; provincial tribunals managed caseloads better than federal counterparts. - Backlog of cases increased by “5.7 percent” in 2023, with significant surges in the Accountability Courts and the Appellate Tribunal Inland Revenue. - Judicial congestion leads to prolonged proceedings; tax and land disputes often appealed to higher courts, further straining the system. - Staffing vacancies in federal-administered courts (Table 14 — Vacant Positions in Courts under administrative control of Federal Government): - Province / No. of Courts / Presiding Officers (Vacant Positions) / Members (Vacant Positions) / Officers & Staff (Vacant Positions) / Total - Punjab: 58 / 6 / 7 / 151 / 164 - Sindh: 43 / 13 / 10 / 89 / 112 - Khyber Pakhtunkhwa: 18 / 3 / 2 / 48 / 53 - Balochistan: 7 / 1 / 0 / 15 / 16 - Islamabad: 22 / 3 / 11 / 126 / 140 - Total: 148 / 26 / 30 / 429 / 485 - Impact: Unfilled positions have left some Administrative and Special courts completely non-functional for extended periods (example: Competition Appellate Tribunal). ### Ongoing reform efforts and coordination - Initiatives: - Chief Justice is leading effort to establish the National Judicial (Policy Making) Committee as a forum for justice-wide reforms to improve performance standards and accountability. - Challenge: coordination across numerous separate legal and administrative entities is difficult without an official mandate or resources for follow-on activities. - Recommendation theme: further investment in governance and competency improvements across adjudicative forums to yield short-term improvements and foundation for long-term change. ### Alternative Dispute Resolution (ADR) - Recent reforms to expedite judicial process and enhance court capacity include developing ADR infrastructure. - ADR developments: - Alternative Dispute Resolution (ADR) Act, 2017 aimed at improving judicial efficiency and reducing backlogs. - ADR institutional mechanisms established in major jurisdictions: Karachi, Lahore, and Islamabad. - Creation of International Mediation and Arbitration Centre (IMAC) and Pakistan’s accession to the Singapore Convention on Mediation. - Early performance data (Ministry of Law and Justice) for Islamabad's District Judiciary, November 2023 to February 2025: - 500 cases were referred to mediation. - 2,781 remained pending before mediators. - 112 were resolved during that period. - Interpretation: shows early progress but highlights need for further capacity building and broader adoption of ADR to ease pressure on formal courts and expedite commercial dispute resolution. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 338. Efforts to strengthen the judicial sector, especially performance, are underway with several ### 338. Efforts to strengthen the judicial sector, especially performance, are underway with several ### Judicial reform initiatives and current measures - The Supreme Court has introduced measures to enhance judicial performance, including: - the digitalization of case management systems; - the establishment of specialized benches to handle key commercial matters such as taxation disputes. - Plans are underway to develop commercial litigation corridors across various courts. - The Ministry of Law and Justice’s legislative amendments to the Income Tax Ordinance, 2001, are intended to modernize and strengthen the Appellate Tribunal Inland Revenue (ATIR). - Success of these measures depends on receiving the attention and support required for implementation and to achieve intended objectives. ### Outstanding challenges and reform priorities - Overhang of old cases, weak enforcement of contracts, and inadequate protection of property rights remain. - Required measures should be tailored to Pakistan’s legal tradition and organizational arrangements, and include: - improvements in the legal framework; - adaptations of procedural rules; - increased attention and transparency regarding judicial performance; - greater standardization and rigor of rules relating to appointment and judicial integrity. - Emphasis: establishing a system that effectively and efficiently resolves commercial disputes is critical for future economic development. ### Lessons from international experience - Empirical evidence over the last 25 years shows improving judicial performance is possible, but many reforms fail to achieve objectives. - Mixed results from: - increasing the number of judges; - establishing new courts; - increasing payment of judges. - Greater success has been achieved by modifying procedural rules, including: - establishing mandatory time limits on plaintiffs and defendants at each stage of litigation; - supporting active case management. - Judicial performance is sensitive to public monitoring, leading to the expansion of regular performance reporting (including in the EU). ### Phased reform strategy and entry points - Pakistan’s variated legal system supports a graduated reform approach starting with a subset of courts to facilitate institutional learning and minimize implementation risks. - Administrative Tribunals and Specialized Courts handling commercial matters (under direct administrative oversight of the Ministry of Law and Justice) present a pragmatic starting point due to centralized organizational arrangements that allow greater support, close monitoring, and operational coordination. ### Table 15 — Recommendations on Rule of Law (selected actionable items preserved verbatim) - 323. Establish a program to reduce the backlog of cases especially commercial disputes and publish on a Government website a report on progress in implementing the plan. - Responsible Authority: Ministry of Law & Justice, Judicial Service Commission, Supreme Court, & Provincial High Courts. - Action Objective: Improve efficiency of dispute resolution - Timeline: MT - 1. Establish an action plan for updating the legal framework for contracts and property rights and produce an updated draft Code of Civil Procedure for submission to Parliament. - Responsible Authority: Ministry of Law & Justice - Action Objective: Enhance the legal framework - Timeline: MT - 2. Introduce changes in procedural rules to establish time limitations and reduce incentives to delay resolution of contract cases. - Responsible Authority: Ministry of Law & Justice, Administrative Tribunals & Special Courts - Action Objective: Improve the efficiency of the judiciary - Timeline: MT - 3. Establish a task force to propose reforms to enhance the efficiency of contract enforcement that aligned with good practices, including steps to introduce automated proceedings. - Responsible Authority: Ministry of Law and Justice; Federal and Provincial Governments. - Action Objective: Enhance the efficiency of contract enforcement. - Timeline: MT - 4. As part of the registry of state assets established by the Ministry of Finance, identify in a centralized database of all land owned by the state and identify the state entity vested with control over those rights. - Responsible Authority: Ministry of Finance - Action Objective: Enhance property rights protection - Timeline: ST - 5. As part of the policy on management of non-financial state assets led by the Ministry of Finance, establish and publish clear rule-based procedures for the transfer of state-owned land – both between government entities and between the state and private actors, and publish a list of all transfers or modifications of property rights, and the value obtained by the state for the alteration every 6 months. - Responsible Authority: Ministry of Finance - Action Objective: Enhance Property Rights Protection - Timeline: ST - 6. Establish the methodology to be used to assess the performance of courts and judges reporting to the Ministry of Law and Justice and publish on a Government website the results of the first monitoring exercise in all federal Administrative Tribunals and Special courts relating to commercial cases. - Responsible Authority: Ministry of Law and Justice; the Federal Administrative Tribunals and Special Courts - Action Objective: Improve efficiency of the Federal Administrative Tribunals and Special Courts - Timeline: MT - 7. Create standardized principles for judicial appointments and tenure for the appointment of judges and members of the Administrative Tribunals and specialized courts and demonstrate compliance with those principles for all judicial appointments in courts dealing with commercial cases. - Responsible Authority: Cabinet, Judicial Commission of Pakistan and Ministry of Law and Justice. - Action Objective: Improve efficiency of the Federal Administrative Tribunals and Special Courts - Timeline: MT - 8. Strengthen integrity and conflict of interest provisions for all judicial personnel and review and increase transparency around payments and grants to judicial personnel. - Responsible Authority: Cabinet (Federal) - Supreme Judicial Council and Provincial Governments (Provincial High Courts). - Action Objective: Enhance judicial integrity - Timeline: MT - 9. Initiate yearly public reporting on the steps taken to strengthen integrity, including statistics on number of complaints received, and the disposition of complaints and other actions. - Responsible Authority: Cabinet (Federal) - Supreme Judicial Council and Provincial Governments (Provincial High Courts). - Action Objective: Enhance Judicial Integrity - Timeline: MT - 10. Expand and institutionalize ADR mechanisms by operationalizing ADR centers nationwide and enacting the Arbitration Bill. - Responsible Authority: Cabinet (Federal) and the Ministry of Law and Justice - Action Objective: Strengthen Alternative Dispute Mechanisms - Timeline: MT - 11. Prepare a multi-year judicial reform strategy to strengthen institutional performance and judicial service delivery in Pakistan. - Responsible Authority: Ministry of Law and Justice, Judicial Service Commission, Supreme Court and Provincial High Courts. - Action Objective: Improve judicial efficiency. - Timeline: MT ### Administrative Tribunals and Special Courts — snapshot (selected totals preserved exactly) - Federal Jurisdiction total: 148 (breakdown by province/territory listed in the source). - Provincial Jurisdiction total: 179 (breakdown by province listed in the source). ### Anti-corruption: challenges, evidence, and strategic recommendations - Core competencies required for effective anti-corruption efforts include capacity to: - independently identify key corruption risks and vulnerabilities; - establish priorities for combating corruption; - coordinate implementation of policies; - monitor implementation and adapt practices based on results. - Historical and institutional context: - Prevention of Corruption Act enacted in 1947. - Specialized agencies created: National Accountability Bureau (NAB), Federal Investigation Agency (FIA), Provincial Anti-Corruption Establishments (PACEs). - High-level public officials have been convicted in recent history. - Amounts of stolen assets recovered by the National Accountability Bureau amounting to PRs 5.310 trillion from January 2023 to December 2024. - Constraints and impact: - Expert assessments find Pakistan’s ability to control corruption is limited. - A 2024 Ministry of Law and Justice Task Force report found NAB had at times exceeded its mandate, initiated politically motivated cases, and exercised unfettered and excessive powers that violated individuals’ rights. - Uneven enforcement of criminal laws based on political considerations diminishes anti-corruption impact and undermines government effectiveness. - Strategy and sequencing recommendations: - Start with a modest short-term effort to define anti-corruption objectives, prioritize and coordinate actions, and learn from transitional efforts before pursuing a comprehensive national strategy. - Establish a temporary structure (such as a task force) to assess severe corruption risks in ministries and agencies and propose a limited number of priority measures. - Leverage information from existing institutions (NAB, FIA, PACEs, Accountability Courts, Establishment Ministry, Ministry of Law and Justice, Auditor General of Pakistan, Competition Commission of Pakistan). - Build on NAB’s Prevention Committees experience for studying key risk areas (e.g., tax evasion and power sector). - Develop an action plan to enable coordination across entities and to establish effective oversight and managerial responsibilities for implementation of anti-corruption reforms. - Historical note on national strategies: - Pakistan’s 2002 National Anti-Corruption Strategy (NACS) included more than 400 measures during its 5-year duration, but the implementation plan failed to deliver progress; there have been no successor attempts to define a strategy. *IMF | Technical Assistance Report – Pakistan Governance and Corruption Diagnostic* ### 352. Over time, the effort may transition to updating the national anti-corruption strategy. ### tarea2025098-source-pdf - 352. Over time, the effort may transition to updating the national anti-corruption strategy. ### Transition to a national anti-corruption strategy - Supported by an extensive and robust risk analysis methodology, a coordinated whole-of-government approach to fighting corruption could be designed with: - clear objectives; - diagnosis of risks; - a plan for implementation (including timelines, responsible agencies, resource allocations, and a dedicated coordination body). - Lessons from the previous implementation plan of the 2002 NACS emphasize: - strong political ownership; and - wide stakeholder engagement as critical elements for success and sustainability. ### Pakistan’s Anti-Corruption Regime — Legal and institutional frameworks - Pakistan’s principal laws defining corruption offenses: - Pakistan Penal Code (1860); - Prevention of Corruption Act (1947); - National Accountability Ordinance (NAO) (1999). - Corruption offenses covered include: - active and passive bribery, trading in influence, embezzlement, abuse of functions and illicit enrichment. - Legal persons can be subject to corporate criminal liability for corruption offenses. - Anti-Money Laundering Act: - provides for the general offense of money laundering, which includes as predicate offense the crimes of corruption. - Benami Transactions (Prohibition) Act of 2017: - criminalizes and allows confiscation of properties subject to transactions or arrangements made by a person on behalf of another or under a fictitious name. - Pakistan underwent a UNCAC assessment and was largely found to have criminalized relevant offenses under the UNCAC, but authorities were recommended to clarify the element of “to promise” in relation to bribery offenses and obstruction of justice. ### Institutional landscape and roles - Principal anti-corruption/enforcement bodies: - National Accountability Bureau (NAB) — apex anti-corruption body, established in 1999; primarily responsible for detecting, investigating and prosecuting high level corruption offenses. - Federal Investigation Agency (FIA) — created in 1974; broader federal mandate including organized crime, human trafficking, immigration offenses; post-NAO amendments, FIA investigates corruption involving federal officials but below the PRs 500 million threshold. - Provincial Anti-Corruption Establishments (PACEs) — set up in each of the four provinces; investigate corruption involving provincial officials. - Recent NAO amendments changed NAB jurisdiction to cover cases involving more than PRs 500 million (approximately US$1.8 million), regardless of whether they involve federal or provincial officials or the public at large (involving at least 100 persons). ### Observations on Pakistan’s anti-corruption legal approach - The legal framework is highly focused on prosecuting corruption. - Many jurisdictions adopt broad anti-corruption laws to increase consistency and coherence; these can: - institutionalize holistic anti-corruption policies (prevention, investigation and sanction); - clarify mandates and coordination among agencies. - Example cited: Anti-Corruption Act in Sri Lanka as a foundational law establishing a nation’s anti-corruption legal framework. ### Key ministries and oversight institutions - Establishment Division: - regulates recruitment, promotion, conduct and discipline of civil servants; - enforces service rules and ethical codes of conduct and disciplinary actions; - manages dossiers for promotion consideration including checks on asset declarations (last five years). - Ministry of Law and Justice: - legal vetting, legislative drafting and constitutional interpretation for anti-corruption laws; - led and coordinated the 2024 Task Force on the review of the anti-corruption framework. - Financial Monitoring Unit and National AML/CFT Authority: - combat money laundering often covering proceeds from corruption, identified as a significant risk. - Auditor General of Pakistan (AGP) and Public Accounts Committee (PAC): - AGP conducts independent audits, identifies financial irregularities and systemic issues; - Public Accounts Committee scrutinizes AGP reports and may refer cases to NAB. ### Comparative overview of enforcement agencies (scope and thresholds) - NAB: Jurisdiction — National (both Federal and Provincial Officials); Focus — High-profile/Grand Corruption; Financial Threshold — >PRs 500 Million; Legal Basis — NAO (1999). - FIA: Jurisdiction — Federal Officials; Focus — Federal Crimes (including corruption); Financial Threshold —