Is Pakistan losing 6 per cent of its GDP to corruption, how is it related to state capture?

New Delhi: A new report by the International Monetary Fund (IMF) has come out with some condemning verdicts for the state of Pakistan and its economic situation. The report points to the pervading corruption in Pakistan and how it is ‘state capture’, a phenomenon whereby public and economic policy is manipulated to benefit a narrow circle of elitists.

The report titled Governance and Corruption Diagnostic Assessment (GCDA) presents a grim picture of the overall economic system in Pakistan where corruption is "persistent and corrosive”; distorting markets, eroding public trust and undermining fiscal stability. 

The Governance and Corruption Diagnostic (GCD) report was conducted by the IMF at the request of the Government of Pakistan in order to identify and analyze governance weaknesses and corruption vulnerabilities in the country.

The report argues that Pakistan stands to gain substantial economic benefits if governance improves and accountability is strengthened. It also argues that if reforms are initiated to mitigate the situation, it could significantly increase the country’s GDP. The report warns that this would not be possible without dismantling the ‘elite privilege’ which pervades the country.

While corruption vulnerabilities are present at all levels of government, the report says that "the most economically damaging manifestations involve privileged entities that exert influence over key economic sectors, including those owned by or affiliated with the state.” The concept of ‘state capture’ is central to the IMF report whereby the state apparatus is frequently used to enrich specific groups at the expense of the broader public and corruption at all levels is normalised.

The report estimates that ‘elite privilege’ drains billions of dollars from the economy annually. To compound the problem, tax evasion and regulatory capture further inhabit genuine private sector investment.

The report examined governance at the federal level in five key areas that included fiscal governance, market regulation, financial sector oversight, anti–money laundering and countering the financing of terrorism, and the rule of law. It also reviewed the strength and effectiveness of Pakistan’s anticorruption institutions.

The findings then found out how persistent and widespread corruption risks are across the state-dominated economy. It looked into how the system is shaped by complicated regulations and weak institutions. Further lack of accountability and laxity in law enforcement make the problem more pronounced.

The report then concluded that corruption remains a long-standing and deeply rooted problem in Pakistan. With time it has harmed economic growth and discouraged investment in the country. Governance indicators thus have consistently placed Pakistan near the bottom at global rankings.

The report also talked about weakness in administrative and executive functioning that result in augmenting the larger economic ills. The courts for example face long delays in resolving commercial disputes and anti-corruption bodies like the National Accountability Bureau (NAB), the Federal Investigation Agency (FIA) struggle with weak coordination and inefficient investigative practices. This is further exacerbated by the legacy of political influence in the workings of these institutions, further compounding the ‘state capture’ problem.