Zafar Iqbal

In the wake of securing another $1 billion under the Extended Fund Facility, Pakistan finds itself once again under the International Monetary Fund’s (IMF) microscope—this time, for all the right reasons. A second IMF mission, dispatched in just two months, has arrived not to review monetary targets or fiscal deficits, but to probe something far more foundational: governance, transparency, and corruption.

Dubbed the Corruption and Governance Diagnostic Mission, the IMF’s latest engagement with Pakistan goes beyond budget sheets and into the very engine room of the country’s administrative and economic machinery. The mission plans to consult over 30 key institutions, from the judiciary and anti-corruption bodies to regulators like OGRA and entities in the banking and petroleum sectors. This shift signals a growing recognition within the IMF that no financial stabilization plan can succeed without dismantling the structural inefficiencies and rent-seeking practices that plague Pakistan’s economy.

Corruption in Pakistan is not just about brown envelopes or backdoor deals—it is baked into the very policies that govern key economic sectors. Take, for instance, the decades-old fuel pricing structure known as the Inland Freight Equalisation Margin (IFEM). Introduced in the 1960s, the IFEM was designed with the seemingly noble intent of promoting uniform fuel prices across the country. Cities far from ports and refineries would pay the same price as those next door, with the cost of transportation effectively spread out as a surcharge on all petroleum products.

While it may appear equitable on the surface, this system has long devolved into a breeding ground for inefficiency and fraud. With fixed freight margins and a lack of effective monitoring, oil marketing companies (OMCs) and transporters routinely exploit the system. Fuel meant for one region is diverted to another for higher profits, while inflated transportation charges go largely unchecked. The result? Artificial fuel shortages in some areas, supply chain inconsistencies in others, and billions quietly siphoned away through systematic manipulation.

This petroleum pricing debacle is a glaring example of what the IMF mission must confront—a policymaking culture where distortion is the rule, not the exception. By keeping dysfunctional systems like IFEM alive for decades, successive governments have not only rewarded inefficiency but also actively discouraged market-based reform. The result is an economy that cannot operate independently or efficiently without external bailouts.

And this dysfunction is not limited to oil. Whether it’s the power sector plagued by circular debt, the taxation system riddled with exemptions and informal leakages, or SOEs (State-Owned Enterprises) running on political patronage rather than performance—Pakistan’s entire economic architecture suffers from the same malaise: deep-rooted, institutionalized misgovernance.

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What makes this IMF mission unique—and urgently necessary—is its focus on unraveling these core problems. It is not just about reducing budget deficits anymore; it’s about cleaning up the systems that make fiscal sustainability impossible in the first place.

Of course, reforms are easier said than done, especially when powerful interest groups stand to lose. In the case of petroleum pricing, deregulation has been discussed in government circles for months. Yet no decisive action has been taken, primarily because of resistance from those who benefit from the current structure—OMCs, transport lobbies, and political stakeholders who profit from the opacity.

This is where the IMF can—and must—apply meaningful pressure. A reform like ending the IFEM or restructuring it into a more transparent and accountable framework could act as a litmus test for the government’s seriousness about governance reform. If authorities cannot tackle this well-documented and outdated system, how can they be expected to fix the far more complex mess in the energy or tax sectors?

It is unfortunate, but not surprising, that many governance reforms in Pakistan only materialize under external pressure—typically from the IMF or other global lenders. The absence of internal political will to take unpopular yet essential steps has left the country in a loop of temporary fixes and long-term decay.

Pakistan’s policy history is replete with examples of good intentions derailed by bad incentives. Price controls, subsidies, tax amnesties, and protectionist policies may offer short-term relief, but they almost always come at the cost of long-term economic distortion. Over time, they become entrenched, defended by those who profit from the inefficiencies they create.

For the IMF mission to succeed, it must go beyond simply identifying flaws and instead push for a roadmap of irreversible reforms—with timelines, enforcement mechanisms, and public accountability. This includes creating independent oversight bodies, ensuring open data access for all regulatory agencies, and perhaps most importantly, strengthening institutional checks that prevent abuse rather than reacting to it after the fact.

The IMF’s governance mission represents not just a bureaucratic audit but a potential turning point. For too long, governance reform has been treated as a “soft issue” compared to monetary policy or fiscal targets. That era must end. Governance is now a frontline economic issue—because without fixing how the state operates, how it regulates, and how it spends, no amount of borrowed money will stabilize the ship.

The focus should not be just on criminal corruption, but on systemic, policy-induced corruption—where rules are designed to fail, oversight is deliberately weakened, and inefficiency becomes institutionalized. Pakistan’s economic recovery depends not on one-off injections of cash but on rewiring the systems that bleed the economy dry.

Pakistan stands at yet another crossroads. With inflation still high, growth stagnant, and debt piling up, the country cannot afford to ignore this chance to reform from the inside out. The IMF has done more than release funds; it has sent a message—clean up or collapse.

This message must resonate not just with policymakers in Islamabad but with the wider public, who often bear the cost of elite-level misgovernance. Citizens should demand transparency not only in IMF deals but also in how their own institutions operate.

If this crisis leads to yet another superficial patch-up without structural change, the same cycle will repeat in a year or two—more missions, more money, more misery. But if the current IMF initiative becomes the catalyst for a serious, sustained cleanup of Pakistan’s economic governance, then perhaps, just perhaps, this time might be different.

The stakes couldn’t be higher. Corruption and bad governance are not just national embarrassments—they are existential economic threats. And unless they are tackled head-on, Pakistan’s future will remain locked in a spiral of dependency, dysfunction, and decline.