Transparency International’s Corruption Perceptions Index (CPI) 2024, released on February 11, 2025, ranked Pakistan 133rd out of 180 countries, with a score of 29 out of 100. This represents a two-point decline from the previous year, signaling a worsening perception of corruption in the country. The CPI measures the perceived levels of public sector corruption, where a lower score indicates higher corruption risks. For Pakistan, this ranking carries significant implications for public financial management, fiscal sustainability and economic stability.
Impact on Public Revenue and Tax Compliance
One of the most direct consequences of a high corruption perception is the erosion of public trust in tax administration. When taxpayers perceive government institutions as corrupt, tax compliance declines, leading to lower revenue collection. A weak tax collection system results in increased budget deficits, forcing the government to rely on borrowing, both domestically and internationally, to finance public expenditures. In Pakistan, where the tax-to-GDP ratio already lags behind regional peers, a further decline in revenue collection due to corruption concerns exacerbates fiscal imbalances and limits the government’s ability to invest in development.
Misallocation of Public Funds and Budget Leakages
A low CPI score suggests that public funds are susceptible to leakages, inefficiency and mismanagement. In a corruption-prone environment, budgetary allocations for health, education and infrastructure development risk being diverted to non-developmental or politically motivated expenditures. The lack of transparency in public procurement processes results in inflated costs and poor-quality services, depriving citizens of essential public goods. Moreover, off-budget transactions and unauthorized expenditures often go unchecked, further distorting fiscal discipline and financial accountability.
Increased Cost of Borrowing and Fiscal Constraints
International financial institutions and bilateral lenders factor corruption risks into their lending decisions. A lower CPI score may increase Pakistan’s risk premium, leading to higher borrowing costs for the government. This results in a greater debt burden, diverting fiscal resources toward debt servicing rather than productive investments. For a country like Pakistan, which already struggles with high public debt and fiscal deficits, a rising perception of corruption further weakens investor confidence, making it more difficult to secure concessional financing from global institutions like the IMF and World Bank.
Weak Institutional Oversight and Public Accountability
Pakistan’s declining CPI score also reflects weak governance and ineffective oversight institutions. Auditor General reports, parliamentary budget reviews and financial monitoring bodies struggle to enforce compliance due to political interference and weak enforcement mechanisms. The lack of an independent anti-corruption framework results in limited accountability for financial mismanagement, creating a cycle where public funds are misused with impunity. Strengthening institutional oversight mechanisms is crucial to improving financial governance and restoring credibility in public finance management.
Policy Recommendations and Way Forward
To mitigate the negative fiscal implications of corruption, Pakistan must undertake comprehensive public financial management (PFM) reforms. Key measures include:
- Enhancing Transparency in Budgeting and Procurement: Digitalizing procurement processes and implementing e-Governance solutions to reduce human discretion in financial decision-making.
- Strengthening Institutional Accountability: Empowering independent audit and anti-corruption bodies to hold public officials accountable.
- Improving Tax Administration and Compliance: Implementing structural reforms in the Federal Board of Revenue to minimize tax evasion and leakages.
- Increasing Public Participation in Budget Oversight: Ensuring citizen engagement in fiscal decision-making through open budget initiatives.
Addressing corruption is not just about improving Pakistan’s CPI ranking; it is essential for ensuring fiscal discipline, strengthening economic resilience and achieving sustainable development. Without decisive action, corruption will continue to undermine the effectiveness of public finances, deter investment and widen socio-economic disparities.
This Article was Published on Publicfinance.pk.
