A republic without oversight

When the IMF warns that a country’s internal audit and oversight system is putting Rs40 trillion in federal public funds at risk, it is not offering a technical footnote, it is issuing an alarm about the survival of the state’s financial governance.

Pakistan’s latest Governance & Corruption Diagnostic Assessment (GCDA) paints a picture far more sobering than past critiques. It suggests that the country’s audit architecture is systematically eroded, structurally compromised and increasingly incapable of performing its most basic function: protecting public money from mismanagement, leakages, waste and corruption.

The IMF’s findings are one stark conclusion: Pakistan does not have a functioning internal audit system. For a federal government that handles tens of trillions of rupees annually through ministries, autonomous bodies, corporations, subsidies, procurement contracts, development programs and grants, this is nothing short of a fiscal catastrophe in slow motion. The absence of internal controls means ministries can spend, commit or divert funds without robust institutional questioning.

Worse still, the few internal audit findings that do emerge are routinely ignored by executive authorities. In the Fund’s words, Pakistan’s internal audit apparatus is nearly nonexistent and the consequences are enormous.

Simultaneously, the country’s external audit capacity is collapsing under structural, legal and bureaucratic constraints. The auditor general of Pakistan, constitutionally designed to be an independent watchdog, is described as weakened, under-resourced, overwhelmed and disturbingly subordinate to the very executive it is supposed to scrutinise. The AGP’s classification as an attached department reporting through ministerial channels undermines its constitutional mandate. This structural flaw transforms the AGP from an independent guardian of fiscal integrity into a bureaucratic subordinate forced to navigate the same power centres whose decisions it scrutinises.

The numbers are damning: more than 6,000 audit reports are issued each year. Yet 75% of over 34,000 audit recommendations remain unresolved before the Public Accounts Committee PAC. That means most audit red flags covering procurement, subsidies, grants, development funds, losses, misappropriations and unauthorised expenditures are simply never acted upon. Pakistan produces audits but does not use them. It documents irregularities but does not correct them. It detects leakages but does not plug them.

These gaps reflect a deeper governance crisis. Parliament’s oversight mechanisms, particularly the PAC, have grown increasingly ceremonial. Without timely hearings, follow-up mechanisms, consequences for non-compliance or dedicated financial oversight expertise, parliamentary audit scrutiny often arrives years too late when responsible officials have retired, transferred or moved on. In many cases, ministries do not even respond to audit paras. This culture of impunity fuels recurring financial scandals from procurement anomalies to development fund leakages.

One of the most glaring failures highlighted by the IMF is the non-implementation of the Public Financial Management Act 2019, especially the requirement to appoint Chief Internal Auditors (CIAs) in federal ministries. Six years after the law’s passage, not a single ministry has appointed a CIA. Instead, only 25 chief finance and accounts officers (CFAOs) exist across the federal system, barely a fraction of what is required. Even more concerning, 15 federal ministries have neither CIAs nor CFAOs, effectively operating with no internal financial control mechanism at all. This is not a gap; it is an institutional vacuum.

Why has the government failed to implement an Act it passed itself? The reasons lie in bureaucratic turf battles, fear of transparency and a political economy in which internal audits are viewed not as a safeguard but as an inconvenience. Ministries prefer discretionary control over financial flows rather than a statutory internal auditor who questions expenditures, flags irregularities and escalates concerns.

Then there is the issue of capacity. The AGP faces a shortage of nearly 1,500 staff, a direct outcome of hiring restrictions and reliance on FPSC recruitment cycles. At a time when audit workloads are increasing due to large federal programs and complex financial transactions, the state is shrinking the very institution tasked with oversight. Despite having ‘charged expenditure’ status under the constitution, which theoretically guarantees budgetary independence, the AGP also still depends on the Finance Division for timely releases. Autonomy on paper means little when purse strings remain under executive control.

Even the quality of audit reporting has declined. The IMF noted the 4,000-page compliance audit report for FY2023–24, calling it excessively long, poorly prioritised and repetitive, recycling years of unresolved irregularities without offering structured, actionable risk assessments. Pakistan’s audit system is drowning in paperwork while starving for impact. The absence of a modern compliance-tracking system means audit findings dissipate into oblivion, creating a cycle where the same anomalies and irregularities surface year after year.

Equally troubling is the absence of a digital compliance-tracking system. Without such a mechanism, audit observations disappear into administrative voids. Ministries cherry-pick what to respond to, delaying the rest indefinitely. The AGP and PAC lack real-time dashboards showing which ministries are lagging, what actions have been taken and where systemic failures lie.

Pakistan lags behind its peers. Countries like Indonesia, Vietnam, Kenya and the Philippines have undertaken aggressive audit and PFM reforms driven by IMF and World Bank programmes. They have established independent audit boards, digitised procurement and payment tracking, built real-time monitoring systems and empowered parliamentary committees with investigative authority.

A financial governance system with no corrective mechanism is not a system; it is a façade. And that facade is now cracking under the weight of Rs40 trillion in public funds moving through largely unmonitored channels.

Yet the IMF’s report is not merely a catalogue of weaknesses; it is a call for structural reform. The Fund recommends making audit reports concise, risk-based and prioritised. It calls for swift PAC reviews rather than delayed multi-year retrospectives. It advises strengthening laws such as amendments to the AGP Act and PAC regulations to reinforce independence and accountability. Most importantly, it urges reforms that hold executive authorities responsible for ignoring audit findings.

But the deeper question is: Why do these weaknesses persist despite repeated reforms, donor interventions and legislative acts? The answer lies in Pakistan’s political economy of governance.

For decades, financial discretion has been a tool of political power. Development funds, procurement choices, ad-hoc budgetary decisions and discretionary spending have been used to cultivate patronage networks. Strong audit systems disrupt these networks by demanding transparency, evidence and compliance. That is why they have never been allowed to function effectively.

A robust internal audit system would block unauthorised expenditures. A strong AGP would expose politically sensitive irregularities. An empowered PAC would summon ministries and demand compliance. A fully implemented PFM Act would restrict discretionary spending. In other words, a strong audit ecosystem would reduce the space for manipulation.

This is why audit reforms, though technical on the surface, are deeply political.

But Pakistan can no longer afford this dysfunction. With declining fiscal space, soaring debt servicing obligations, recurrent IMF programmes and shrinking development budgets, the cost of governance weaknesses is becoming unsustainable. Every rupee lost through mismanagement now has a direct macroeconomic consequence. Weak audit systems worsen deficits. Poor oversight increases risks in procurement and spending. Inefficiencies reduce the credibility of the state’s financial management. International partners and investors increasingly view Pakistan as a high-risk governance environment.

Fixing this crisis requires political courage, bureaucratic cooperation and legal clarity. The AGP must be institutionally and operationally independent, free from executive influence in staffing, budgeting and reporting channels. Internal audits under the PFM Act must be implemented without delay. PAC hearings must become regular, time-bound and enforceable through consequences for non-compliance. Ministries must respond to audit paras in real time. Audit reports must be modernised, prioritised, digitised and integrated with compliance-tracking mechanisms.

Most importantly, a cultural shift is required, one that recognises audit not as an obstruction but as an essential part of governance.

The IMF’s warning is not just about risk; it is about survival. Pakistan’s financial governance must evolve or its vulnerabilities will deepen. Protecting Rs40 trillion in public funds is a test of political will, institutional integrity and national responsibility.

Until Pakistan confronts its audit failures head-on, financial instability will remain chronic, leakages will remain unchecked and mismanagement will continue. And every year, trillions of rupees will remain exposed, lost not because the country lacks resources but because it lacks oversight.

The writer is a trade facilitation expert, working with the federal government of Pakistan.

Disclaimer: The viewpoints expressed in this piece are the writer's own and don't necessarily reflect Geo.tv's editorial policy.

Originally published in https://www.thenews.pk/print/1386382-a-republic-without-oversight