EDITORIAL: Following the recent staff-level agreement between Pakistan and the IMF, which unlocked another $1 billion tranche under the Extended Fund Facility, we now have another IMF mission in town, this time to assess governance reforms and efforts to eliminate corruption and graft across government institutions as well as various sectors of the economy.
This is the second such mission that the international lending body has sent to the country under its Corruption and Governance Diagnostic Mission in two months, and is set to engage in exhaustive consultations with over 30 departments, including the judiciary, the banking sector, anti-graft bodies and OGRA, among others.
At the heart of the mission’s agenda is a renewed focus on deep-rooted governance reforms, economic restructuring and the urgent need to curb corruption and institutional inefficiencies that have held back economic progress in a myriad of ways – enabling rent-seeking behaviour, promoting shady dealings and dodgy practices, and embedding inefficiency into the very fabric of economic management.
With the IMF’s increased emphasis on transparency and accountability as prerequisites for sustained economic support, it is essential that the mission examines how government policies and interventions, over decades, have repeatedly undermined basic economic principles across sectors, stalling progress towards a more efficient, market-driven economy and introducing deep distortions – creating space for rent-seeking, corruption and systemic dysfunction to thrive across both public sector institutions and private enterprises.
A striking example of such distortion is the decades-old system of cross-subsidies in fuel pricing, implemented through the Inland Freight Equalisation Margin (IFEM), which has been in place since the 1960s and artificially maintains uniform fuel prices nationwide, irrespective of actual transportation costs of the fuel. Before the introduction of the IFEM, cities located farther from the country’s port and refineries paid higher prices due to increased transportation costs.
In an ostensible effort to promote price stability and ensure that consumers across Pakistan paid the same price for fuel regardless of their location, the IFEM was introduced – a surcharge applied to all petroleum products to offset transport costs and maintain consistent depot prices nationwide.
While the intent may have been to promote fairness, in practice, this system has long been exploited by transporters and Oil Marketing Companies (OMCs) primarily through inflated freight charges and fraudulent logistics claims.
With fixed freight charges as part of the uniform pricing mechanism in place and no effective checks to ensure that fuel reaches its intended destination, products meant for one region can easily be sold elsewhere for excessive profits. This can undermine supply chain reliability, and lead to artificial shortages and inconsistent availability across regions.
The system suffers from a clear lack of transparency, making it challenging for the regulator to determine whether transporters and OMCs are involved in unfair or exploitative practices.
Although recent months have seen discussions within government circles regarding deregulation of petroleum product pricing, concrete action remains elusive.
Any serious move in this direction is likely to face strong resistance from entrenched interests that continue to benefit from the current pricing structure. It is essential, therefore, that the IMF mission raises this critical issue in its consultations with OGRA and other key stakeholders.
While certainly not the only sector in need of reform, petroleum product pricing stands as a microcosm of broader economic challenges and as a striking example of the economy’s structural dysfunction – where distorted incentives, opaque systems and entrenched interests hinder reform and block the shift towards a more efficient, market-oriented framework.
Given Pakistan’s track record of initiating much-needed governance reforms mainly under external pressure or in times of crisis, one can only hope that the IMF mission is able to identify such systemic issues and nudge the authorities to take meaningful, overdue action.
Copyright Business Recorder, 2025
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