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Reset for clean governance in Pakistan

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Pakistan, the world’s fifth most populous country, and the International Monetary Fund reached a important deal this week to revive a suspended loan. The agreement pulls back the South Asian nation from the brink of an economic and political crisis like the one unfolding in Sri Lanka. But it came with a caveat: a condition to tackle corruption.

That requirement, which was not part of the original loan, reflects a recognition that accountability and economic equality are essential to breaking a pattern of chronic mismanagement by successive Pakistani governments. Since 1950, Pakistan has sought bailouts from the IMF 22 times. It currently ranks a low 140 out of 180 countries on Transparency International’s global index for perceptions of corruption.

“Corruption erodes trust, weakens democracy, hampers economic development, and further exacerbates inequality, poverty, social division, and the environmental crisis,” Transparency noted in its 2021 report.

The current IMF loan to Pakistan, worth $6 billion, was brokered in 2019. Less than half was dispersed before it was suspended when the previous government, ousted in April, failed to meet its terms. By the time the new government of Prime Minister Shehbaz Sharif started negotiations to have the loan reinstated, the country was reeling from the economic shocks of Russia’s war in Ukraine. Pakistan relies on wheat and fuel imports from the two countries. Inflation jumped to 21.3% in June, nearly double from the rate a month before. Its foreign exchange reserves were below the amount needed to cover two months of imports. The country owns $41 billion to cover imports and debt repayments over the next 12 months.

Economists estimate that graft accounts for billions of dollars in lost trade, growth, and revenue annually. That last benchmark is particularly important. In preparation for talks with the IMF to revive the loan, the government set new targets in tax revenue.

The suspended loan, which the IMF has provisionally agreed to boost by another billion dollars, initially sought to increase social spending to improve living standards for Pakistan’s most vulnerable citizens. The revised terms set this week require new tariffs on fuel and electricity. Just as critical, they require the government to establish an anti-corruption task force to review all existing laws aimed at eliminating official graft.

The government balked at tying new anti-corruption measures to the loan. But IMF studies have shown a direct link between addressing corruption, increased annual revenue collection, and a higher shared standard of living. “Curbing corruption is a challenge that requires persevering on many fronts, but one that pays huge dividends,” a 2019 IMF study concluded. “It starts with political will, continuously strengthening institutions to promote integrity and accountability, and global cooperation.”

The IMF deal has forestalled the threat of default and given Pakistan’s government some much-needed financial relief to begin establishing a stabler economic course. More importantly, by building in new conditions of accountability, it may help the country’s leaders embrace two ideals in Pakistan’s Constitution – sadiq and ameen, honesty and righteousness – that provide a cornerstone for a more just and stable society.

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