A series of dramatic political events in Pakistan beginning in late 2007 have ushered in a return to civilian government, but have also produced a lingering uncertainty over the country's future and shaken investor confidence. Parliamentary elections - originally postponed over concerns of instability and later due to the assassination of Pakistan People's Party (PPP) leader Benazir Bhutto - were finally held in February 2008 and saw then President Pervez Musharraf defeated by the PPP and the Muslim League (PML-N) led by former Prime Minister Nawaz Sharif. The PPP and PML-N then decided to form a coalition government and signed a power-sharing agreement in March 2008. Current Prime Minister Syed Yousuf Raza Gilani of the PPP was sworn in on 25 March 2008.
The coalition government pledged to undo laws and measures introduced by Musharraf, among them controversial steps to curb parliamentary powers and the removal of non-pliant judges. The coalition also launched an impeachment process against Musharraf that led to his resignation in August 2008. Although the coalition has managed to restore some judges, the PML-N withdrew from the coalition in August 2008 based on charges that the PPP broke promises about restoring the judiciary and deciding the future presidency. Other key members of the ruling coalition continue to support the PPP, maintaining the PPP-led majority in Parliament. Husband to the late Benazir Bhutto and new leader of the PPP, Asif Ali Zardari, won the presidential elections of 6 September 2008 by a large majority. Freedom House 2009 reports that President Zardari, who held the posts of environment minister and investment minister during Bhutto's two terms in office as Prime Minister, has also come to be controversially referred to as 'Mr. 10%', due to his reputed skimming of public contracts while his wife was in power, spent eight years in prison on corruption charges, although none have ever held up in court. All corruption charges, both domestic and international, as well as a murder charge were dropped in the run-up to his election.
The new administration in Pakistan faces huge challenges in regaining stability in the country and the confidence of foreign investors, as well as in fighting Pakistan's endemic levels of corruption, which penetrates most levels of government and society. However, anti-corruption proceedings have long been suspected of being skewed for mainly targeting members of the political opposition and low-ranking civil servants. A lack of political will, coupled with the perceived co-option of the judiciary and the arbitrariness of many anti-corruption proceedings, poses a major obstacle in the fight against corruption. Between March 2008 and the time of publication, no specific documents or speeches indicating meaningful political anti-corruption statements could be found. Neither the Government of Pakistan nor the anti-corruption agency, the National Accountability Bureau (NAB), websites spell out any recent anti-corruption commitments, although the NAB decided to press forward with corruption charges against Nawaz Sharif. On the one hand, this demonstrates that the NAB intends to continue to target high-level politicians. On the other hand, it has refuelled charges that the NAB lacks independence and is used by the executive to target political opponents. Although it is still unclear what the new leadership will add to anti-corruption efforts, so far the term of new government rule has not been very promising for advancing the anti-corruption agenda from the standpoint of Transparency International Pakistan, and corruption is observed to be on the rise. In February 2009 the opposition leader, Nawaz Sharif was disqualified from parliament, threatening to eclipse the country's fight against Islamic extremism and political infighting. The Supreme Court judgment was followed by demonstrations in the Punjab province.
Business and Corruption
The Government of Pakistan has declared intentions to continue to actively pursue a course of implementing economic reforms that include privatisation, liberalisation and deregulation aimed at making the economic system more investor-friendly and less bureaucratic. However, despite years of booming economic growth, Pakistan's attempts to develop investor confidence and attract investments have been hampered by dramatic political events and continuing instability and violence.
As corruption is omnipresent in Pakistan, business is also seriously impeded by it. It is not only in meetings with public officials that companies are confronted with demands for bribes and other illegal practices, but also in business-to-business relations. In Transparency International's Global Corruption Barometer 2009, corruption is reported to affect the business environment to a rather large extent and the private sector is perceived to be almost equally corrupt as the public sector. In the World Economic Forum's Global Competitiveness Report 2009-2010, companies point to corruption as the third most problematic factor for doing business in the country, just after government and policy instability. Business executives surveyed by the same source report that public funds are fairly commonly diverted to companies, individuals, or groups due to corruption. Petty corruption in the form of bribery is prevalent in law enforcement, procurement and the provision of public services. The World Bank & IFC Enterprise Surveys 2007 report that a little more 27% of companies in Pakistan expect to make unofficial payments to public officials in order to 'get things done'. Companies should note that the most corrupt public bodies are reported to be the police, tax authorities and the power sector. All three demand bribes for routine services and the police also give out bogus fines. Companies involved in import-export activities are affected by corruption in tax and customs and foreign investors often use local agents in order to facilitate interaction with Pakistan's cumbersome bureaucracy. However, investors are legally liable for the corrupt behaviour of agents acting on their behalf and, therefore, companies are generally advised to develop, implement and strengthen integrity systems and to carry out extensive due diligence prior to committing funds in and when already doing business in the country.
The army's stake in continuing to influence both commercial and political decision-making processes deepened over Musharraf's time in office. It is still unclear how much clout President Zardari wields over the military. While it is well-known that Pakistan's military has engaged in corruption in relation to defence procurement, the military has also made significant inroads into other sectors of the economy, including land, construction, property, manufacturing, fertilisers, agriculture, infrastructure development, transportation, health, education, insurance and banking. The military controls an enormous private business empire. The Defence Housing Authority, the five main military foundations, and the thousands of small and large companies that they control benefit from hidden subsidies from a national budget controlled by their ultimate beneficiary - the military elite - and can plead national interest as a way of justifying their activities. Several sources indicate that corruption is rife in privatisation in Pakistan. The experiences of the questionable privatisation of Pakistan Steel Mills (PSM) and the Karachi Electric Supply Company (KESC) among others have drawn attention to the problem. The military's penetration of such a broad range of private sector industries creates heightened corruption risks involving public procurement for companies competing against military interests. According to World Bank & IFC Enterprise Surveys 2007, nearly one-third companies expect to give gifts to win government contracts. Therefore, companies are recommended to use a specialised public procurement due diligence tool in order to reduce corruption risks related to public procurement in Pakistan.
Regulatory Environment
Although steps towards establishing a more efficient business environment have been taken, operating a business can be a cumbersome and slow affair in Pakistan. According to the World Economic Forum Global Competitiveness Report 2009-2010, companies identify government administrative requirements to be quite burdensome and inefficient government bureaucracy as one of the most problematic factors for doing business in the country. Companies consider the burden of government regulation, non-transparent government policy-making, and policy instability to be major business constraints. In an effort to curb corruption and excessive red tape, Pakistan is attempting to eliminate several bureaucratic measures. For example, the government has introduced a simple 5% customs duty on imported machineries for the manufacturing sector. Further, according to the World Bank & IFC Doing Business 2010, the regulatory burden placed on companies in Pakistan has slightly improved throughout 2009. According to the study, starting a company in Pakistan is relatively easier than it was in 2008, requiring 10 procedures (the average for the South Asian region is less than 8) and taking an average of 20 days at a cost of 5% of GNI per capita. In addition, no minimum capital is required.
Companies report that the tax regime is both complex and non-transparent, because the number of tax payments is very high and the tax law is not administered consistently. The result is tax discrimination, inefficient procedures and corruption. Companies face a situation of uncertainty with regard to economic policies and their implementation, as public officials enjoy a high level of discretionary power that enables them to interpret laws as they see fit and encourages corrupt practices and favouritism. Business executives surveyed by the World Economic Forum Global Competitiveness Report 2009-2010 report that government officials usually favour well-connected companies and individuals when deciding on policies and contracts. Corruption is also rife in the process of obtaining licences and documents. The results of the above are time-consuming procedures and increased costs. For example, according to the World Bank & IFC Doing Business 2010, dealing with licences related to constructing a warehouse involves 12 procedures and takes an average of 223 days at a cost of 716.32% of per capita income.
Although Pakistan's legal framework and economic strategy do not discriminate against foreign investment, protection of property rights and contract enforcement is perceived to be problematic because of the irregularities and corruption in the judicial system. Moreover, the judiciary is not seen as independent and is considered to be shielding corrupt political and business elite practices from prosecution. The business community generally lacks confidence in the capacity of the judiciary to enforce rules and laws, and the settlement of disputes often involves paying bribes. Companies should know that Pakistan has been a member of the New York Convention of 1958 since 2005, but the provisions of this convention are still not included in Pakistani legislation. Until Parliament gives final approval of the convention and passes relative legislation, the government has issued renewed ordinances to implement the New York Convention 1958. Despite this, there are still concerns about the sanctity of contractual arbitrations between private companies and the ability to uphold the sanctity of contracts regarding contract disputes where the Pakistani state is one of the parties. Pakistan is a member of the International Centre for the Settlement of Investment Disputes (ICSID); thus, in principle, arbitration should be secured. However, in reality, companies are reluctant to trust that Pakistan will accept decisions by international arbitration. Access the Lexadin World Law Guide for a collection of legislation in Pakistan.
Corruption Levels
Sectors (Judicial System, Police, etc.) describe which kind of corruption can be encountered in different areas. This section covers various forms of corruption, including bribes and facilitation payments. All information is based on publicly available information and should be viewed as general guidelines on the types of corruption existing in the country. Levels of corruption in the different sectors indicate where corruption can be encountered. The levels are defined as follows:
Individual Corruption: Corruption that takes place primarily in relations between individual citizens and public officials and authorities.
Business Corruption: Corruption that takes place primarily in relations between enterprises/companies and public officials and authorities.
Political Corruption: Corruption that takes place in the higher echelons of public administration and on a political level.
Frequency refers to quantitative surveys on corruption in the respective sectors.
Judicial System
Individual Corruption
The judicial system in Pakistan is regarded as one of the most corrupt institutions in the country. The vast majority of people that interacts with members of the judicial system encounters corruption. People regard the courts as a place where only wealthy and influential individuals can afford to pay for, and thereby obtain, fair trials. Average citizens often find themselves forced to resort to informal dispute resolution mechanisms (panchayat), rather than getting themselves involved with the official court system. The panchayat is meant to be used as a secondary institution in order to circumvent the costs and long delays in the courts. Particularly in family and land disputes, the panchayat is being utilised as a primary institution. Normally, it is only if the panchayat cannot settle the dispute that the case will be taken to a formal court.
As English is the official language in Pakistan's justice system, the vast majority of the non-English speaking population does not understand what is going on in the courts. They depend on advice from others to help them through a trial. According to Transparency International Pakistan 2007, however, corruption also flourishes among lawyers. In order to extract more money from litigants, lawyers will sometimes provide advice that will delay or prolong the case, and sometimes even when the case should have been dismissed from the outset.
Business Corruption
According to Freedom House 2008, the judiciary in Pakistan is regarded as one of the institutions most plagued by corruption, particularly in relation to the lower courts. Enterprise Surveys 2007 data reveals that 38.5% of companies in Pakistan identify functioning of the courts as a major constraint to doing business. Hence, companies exhibit low trust in the judicial system and, according to Transparency International Pakistan 2007, it is not uncommon for judges as well as lawyers to solicit bribes. Contract enforcement can be problematic given the domestic court system's inefficiency and lack of transparency. Companies should be aware that the judicial system operates at a very slow pace.
Political Corruption
The Bertelsmann Foundation 2008 reports that the legislative and judicial branches of Pakistan have been repeatedly compromised by executive interference. Parliament has usually been bypassed in the formulation of laws, and the higher courts of the judiciary have frequently been coaxed to pass politically motivated judgements. The procedure for selecting national level judges is required to be transparent by law; however, according to Global Integrity 2008, the procedure is far from being transparent in practice, and the selection process is most often based on political connections. The judiciary is reported to suffer from a lack of compliance with asset declaration requirements. Even though the Pakistani judiciary is notoriously corrupt, the judges are nevertheless informally exempt from the oversight and investigations by the National Accountability Bureau (NAB). The judiciary is intended to rely on internal accountability mechanisms; however, members of the judiciary are not investigated, nor are they held accountable, and that allows them the opportunity to continue their corrupt behaviour.
According to Transparency International 2008, when President Musharraf declared a state of emergency following his controversial re-election in October 2007, the Chief Justice Iftikhar Muhammad Chaudhry reacted by declaring the action illegal and made an interim order against the declared state of emergency. Subsequently, the Pakistani Army entered the Supreme Court building and removed and arrested Chaudhry with several other Supreme Court judges. Analysts say that President Zardari and the PPP have been slow to reinstate Chaudhry and the other judges removed by Musharraf, because the party fears that they will challenge the award of immunity from corruption charges to Zardari and other party leaders. Hence, the judiciary remains largely pliant towards the executive. According to Freedom House 2008, both the NAB and special corruption courts are used selectively to prosecute rival politicians and officials (see 'Public Anti-Corruption Initiatives' in the Initiatives section).
Frequency
The World Bank & IFC: Doing Business 2010: - Enforcing a commercial contract requires a company to go through 47 procedures, taking an average of 976 days at a cost of nearly 24% of the claim.
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give the independence of the Pakistani judiciary from political influences of members of government, citizens or companies a score of 3.1 on a 7-point scale (1 being 'heavily influenced' and 7 'entirely independent').
- Business executives give the efficiency of the legal framework for private companies to settle disputes and to challenge the legality of government actions and/or regulations a score of 3 and 2.9 respectively on a 7-point scale (1 being 'extremely inefficient' and 7 'highly efficient').
- More than 38% of companies surveyed identify the functioning of the courts as a major business constraint.
Police
Individual Corruption
According to the Transparency International Pakistan's National Corruption Perception Survey 2009, the police continues to be considered the most corrupt sector in Pakistan. Freedom House 2008 reports that the police routinely engage in crime, extort money from prisoners and their families, and accept bribes to file or withdraw charges. For most people in rural areas, filing charges or complaints with the police entails demands for bribes by the police to even have the reports filed. Most people must make repeated visits to the police, and this will often include transportation costs, extra fees, documents, bribes, etc. The end result is that it becomes very expensive for relatively poor people to file a charge or report a crime. Furthermore, the list of those items for which common people must pay bribes is long and includes paying money to be released from false arrest, to avoid false arrest, and paying money for having an accused arrested etc.
According to Transparency International Pakistan 2007, corruption is so pervasive in the police that some household respondents stated that they always keep PKR 10-30 in their pockets in case they should run into a police officer.
Business Corruption
Corruption by the police in Pakistan results in a lack of confidence in authorities and a culture of lawlessness. According to the World Economic Forum Global Competitiveness Report 2009-2010, companies lack confidence in the reliability of police services to protect them from crime. This is corroborated by Enterprise Surveys 2007 data which reveals that nearly 49% of companies pay for security in Pakistan while a little more than 35% of companies identify crime, theft and disorder as major constraints to doing business in the country. Complaints over unlawful police methods are not confined to poor people. Companies also complain that they meet police extortion, e.g. in the form of bogus traffic fines.
Political Corruption
Appointed officials often have conflicts of interest due to personal loyalties, family connections or other biases. It is well-known in Pakistan that influential landlords decide the appointment of law enforcement officers in their area and that the officers sometimes act as their personal employees in practice. Citizens can complain about the police to their provincial Citizen Police Liaison Committee; however, it is common for citizens to face discriminatory behaviour and a lengthy process when pursuing their complaints.
Frequency
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give the reliability of Pakistan's police services to enforce law and order a score of 3 on a 7-point scale (1 being 'cannot be relied upon at all' and 7 being 'can always be relied upon').
Bribing public officials is common to gain access to public utilities. According to Transparency International Pakistan National Corruption Perception Survey 2009, power and health are perceived to be the most corrupt departments after the police. In the electricity department, the majority of people have to either bribe or use their personal connections in order to obtain electricity. In one pocket of a semi-rural area of Sindh, the respondents disclosed that they do not pay the bills according to the metre, since they do not even have a metre. In areas where people do have metres, visits by metre readers most frequently entail bribes. Furthermore, cash payments are reportedly frequently made in order to maintain a connection to the electricity network. The Transparency International Global Corruption Barometer 2009 also reports widespread corruption in connection with citizens' efforts to obtain permits and registrations.
Further, citizens perceive Pakistan's health services to be extremely corrupt, and informal payments required to obtain health services occur both frequently and at high costs. In the opinion of a respondent of Punjab, there is 'no difference between a Daco (Dacoit) and Doctor'.
Companies operating in Pakistan experience considerable red tape and slow procedures when trying to obtain licences and permits. There are often demands for facilitation payments in order to speed up the process. Companies are likely to encounter corruption in order to get access to electrical, water and telephone connections and other public utilities. However, corruption does not end with getting access. According to Transparency International Pakistan 2007, each visit by officials from utility departments - metre readers for instance - will likely entail corruption.
According to the World Bank Pakistan Infrastructure Implementation Capacity Assessment 2007, the business environment is characterised by corruption and a lack of contract enforcement, which makes proper risk management difficult. The study estimated that corruption within infrastructure projects accounts for more than 10-15 percent of total project values. Furthermore, according to the survey, the projects reviewed took three times as long and cost twice as much as originally planned to complete due to extra contractual processes, such as external verifications (by the National Accountability Bureau, parliamentary committees, chief ministers inspection teams and others), government procedures related to audit and payments, local government procedures (in mining, land acquisition, forest department and removal of utilities), law enforcement agencies and corruption.
Political Corruption
According to the World Bank Pakistan Infrastructure Implementation Capacity Assessment 2007, infrastructure construction and administration is marred by corrupt practices. It is common knowledge that top bureaucratic positions are sold at high prices. After paying huge sums to obtain senior government positions, officials need to recoup their expenses. This is best done by supporting projects that serve construction companies that are involved with expensive infrastructure projects and with wealthy land owners who want to pay extra to secure their water supply. These types of projects provide officials with the opportunity to obtain large kickbacks.
Corruption is rampant within Pakistan's health sector. Siphoning of public funds for private gains occurs at all levels of the health system. Political and bureaucratic leakage, fraud, abuse and corrupt practices are likely to occur as a result of poorly managed expenditure systems, lack of effective auditing and supervision, organisational deficiencies and poor fiscal controls over flow of public funds. According to the U4 Anti-Corruption Resource Centre 2007, corruption at the governance level, such as deliberate lack of oversight by public officials, unfair hiring practices and nepotism, inattention to staff accountability for misconduct, preferential treatment to well-connected individuals, and a conscious lack of institutionalising mechanisms to compel accountability also constitute corruption at the health systems level.
Frequency
The World Bank & IFC: Doing Business 2010: - To construct a warehouse and obtain the necessary licences, companies are required to go through 12 procedures taking an average of 223 days at a cost of 716.3% of per capita income.
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give government administrative requirements (permits, regulations, reporting) in Pakistan a score of 3.3 on a 7-point scale (1 being 'extremely burdensome' and 7 'not burdensome at all').
Wafaqi Mohtasib (Ombudsman): Annual Report 2007: - The overwhelming majority of the complaints filed to the Ombudsman's Office during 2007 regarded utility companies, accounting for 70% of the total complaints admitted.
Land Administration
Individual Corruption
The Pakistani land administration is rife with corruption. According to the Transparency International Pakistan National Corruption Perception Survey 2009, more than 89% of the respondents reported having faced corruption when dealing with a land administration official. People report having to pay bribes for land registration, to obtain land certificates, and for land surveys.
In the Pakistani countryside, many land disputes are settled in the panchayat rather than in the formal courts. As the formal judicial system has a reputation for being corrupt and for serving the interests of the wealthy and powerful only, rural people reportedly prefer to settle land disputes through informal compromises (see 'Judicial System' in the Corruption Levels section).
Freedom House 2008 reports that land rights are endangered by the weak rule of law and the military's expanded control over economic resources. Tenant farmers who have refused to cede their land rights to the army have reportedly faced dismissal from employment, arbitrary detention, violent harassment and murder.
Business Corruption
According to the Bertelsmann Foundation 2008, Pakistan's legal system does not protect property rights effectively and companies should be aware that there have been several examples of property rights violations. According to the World Economic Forum Global Competitiveness Report 2009-2010, companies report that property rights are not adequately protected in practice. An International Federation of Surveyors study, Corruption and Land Administration 2006, concludes that all forms of corruption occur in land administration. The study refers to several examples of corruption cases, such as that of a land revenue officer in Pakistan accused of having illegally accumulated personal assets instead of facilitating land transactions amongst members of civil society and who was sentenced to five years in prison.
Political Corruption
Corrupt practices within real estate commissions, industrial allotment commissions and land revenue offices are not uncommon. According to an International Federation of Surveyors study, Corruption and Land Administration 2006, there are numerous cases where high-level officials have illegally accumulated land (both agricultural and industrial) and property for themselves and their relatives. Furthermore, property rights are not completely guaranteed. Both the state and the military have on numerous occasions violated property rights. The military-owned Fauji Foundation is the country's largest corporation and land owner. Transparency International 2008 reports that the Defence Housing Authority regularly encroaches on private and provincial lands to replenish its stocks without negotiation or payment. One example of property rights violation was the suppression of the farmers' movement by the military when tenant farmers protested against military land-grabbing initiatives. The protesters were detained for weeks, and some were unlawfully arrested and tortured.
The Pakistan Telecommunications Authority (PTA), the regulatory authority of Pakistan's Internet, issued orders in August 2008 to block 6 websites, as the content supposedly posted on these links was exposing Admiral Afzal Tahir, Pakistan’s Naval Chief as a land grabber and how he had been misusing his power.
Frequency
The World Bank & IFC: Doing Business 2010: - To secure rights to property, companies must go through 6 procedures, taking an average of 50 days at an estimated cost of 7.2% of the property value.
According to Transparency International Global Corruption Barometer 2009, nearly all people encounter corruption when interacting with the tax authorities. The forms of corruption include paying bribes to reduce tax assessments and to obtain a false certification of taxes paid.
Business Corruption
According to Transparency International Pakistan 2007, companies operating in Pakistan are faced with a complex set of taxes. Widespread collusion between taxpayers and tax officials has been reported, a situation that has led to tax evasion and lack of tax compliance. Many companies are reluctant to pay taxes, as they see many of their competitors evading taxes and colluding with tax authorities. The lack of sanctions for companies cheating on tax payments encourages many companies to do the same so that they are not put at a disadvantage. According to Global Integrity 2008, the possibility of abuse of power cannot be ruled out, because big industrial concerns or individual groups may evade tax laws. The Federal Bureau of Revenue oversees implementation of tax laws, but tax officials are allegedly notorious for applying the tax laws as they see fit.
Companies operating in Pakistan should note that, generally, there is no trust between taxpayer and tax collector. Tax inspectors' visits often entail demands by inspectors for bribes in order to supplement their low incomes. Many companies are also reluctant to pay taxes because they are convinced that the money is pocketed.
In March 2008 the chairman of Federal Board of Revenue (FBR), Abdullah Yousuf, stated that of the 25,000 registered corporate taxpayers only 14,000 had filed tax returns this year. While around 4,600 paid some income tax, an equal number stated that they did no business, and the remaining had shown losses.
Frequency
The World Bank & IFC: Doing Business 2010: - Companies must pay 47 different taxes and spend an average of 560 hours a year administering the payment of these taxes at a total tax rate of 31.6% of profits.
- The average annual number of required meeting or visits for companies with tax officials was 1.6.
- 23% of companies identify tax administration as a major constraint to doing business.
- 7.5% of companies report that a typical company reports less than 100% of its sales for tax purposes.
Customs Administration
Individual Corruption
According to the Transparency International Pakistan National Corruption Perception Survey 2009, 90% of the household respondents had faced corruption when dealing with customs administration. Global Integrity 2008 reports that customs and excise laws are infested with lacunas, and officials seldom enforce them uniformly or without favour or fear.
In February 2009, a huge quantity of smuggled goods of foreign origin was seized by the Directorate General, Intelligence and Investigation (DGII) of Federal Board of Revenue (FBR), Karachi. Smugglers had transported a huge quantity of goods to Karachi for selling at local markets.
Business Corruption
Companies should note that the amount of red tape related to customs results in lengthy processes, and that irregularities in upholding regulations give rise to corrupt practices. The customs authority is known as one of the most corrupt institutions. However, according to Transparency International Pakistan 2007, Pakistani authorities have introduced a simplified tariff system in an effort to eliminate corruption opportunities. The World Bank & IFC Doing Business Reformer's Club Case Study 2007 reveals that customs clearance time at the Karachi international container terminal dropped from 10 days in 2004 to 4 hours in 2007. Also, despite a reduction in tariffs, customs revenues also went up from PKR 115 billion to PKR 138 billion. However, customs clearance generally continues to be cumbersome and slow.
- A standard import shipment requires 8 documents and takes an average of 18 days at a cost of USD 680 per container.
World Economic Forum: The Global Competitiveness Report 2009-2010: - Business executives give the efficiency of customs procedures (formalities regulating the entry and exit of merchandise) in Pakistan a score of 3.6 on a 7-point scale (1 being 'extremely inefficient' and 7 'extremely efficient').
According to the US Commercial Service 2007, the procurement process in Pakistan is improving but still cases of corruption are reported. For instance, Transparency International Pakistan's National Corruption Perception Survey 2009 reports that the cost of corruption in procurement is about 15%. The competitive bidding process sometimes excludes many potential bidders by last minute publicity or by prequalification criteria that exclude bidders and thereby limit the competition. A major flaw in the public tender bidding process is the absence of an independent complaint handling system. According to Global Integrity 2008, companies found guilty of irregular practices are often not effectively stopped from participating in future bids. Most bidders caught for corruption participate again under different names. Companies are recommended to use a specialised public procurement due diligence tool in order to mitigate corruption risks related to public procurement in Pakistan. See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.
Political Corruption
Corruption is widespread in the public procurement process in Pakistan. The Public Procurement Regulations Authorities (PPRA) governs Pakistan's public procurement. The World Bank, DFID, and the Asian Development Bank are involved in modernising the procurement system, and although transparency is improving, the system still exhibits irregularities. These flaws include inadequate bidding documents, insufficient response time for bidders, prequalification used as a measure to limit competition, price negotiations, lack of an independent complaint handling system, etc.
Public sector corporations, such as power and utilities corporations, infrastructure, as well as public works are the most affected by corruption. According to Transparency International 2008, public works kickbacks are estimated to constitute approximately 25% of the budget. As Pakistan is a major recipient of grants and loans from international donor agencies, corruption in procurement also means that anti-poverty aid and development projects are hampered by corruption. Some projects remain unfinished because the funds were squandered on bribes, kickbacks and commissions.
Defence-related procurement and contracts are excluded from the scrutiny of the national anti-corruption agencies, but it is common knowledge that they are also corruption-ridden. A prominent case was that of a retired admiral who returned USD 7.5 million to the government upon admitting that he had accepted bribes and commissions for several defence contracts.
See more on public procurement under 'Public Anti-Corruption Initiatives' in the Initiatives section.
- Business executives give the favouritism of government officials when deciding upon policies and contracts a score of 2.8 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').
- The value of a gift expected to secure a government contract is 0.74% of the contract value.
Environment, Natural Resources and Extractive Industry
Individual Corruption
According to the Transparency International 2008, farmers downstream on irrigation systems become fourfold losers due to rampant corruption in the water sector: 1) they pay water fees whether or not they get water; 2) they pay bribes to get their rightful quota; 3) their productivity suffers due to erratic water supplies and; 4) they pay more to support the irrigation system than those who use their influence to avoid paying fees.
Business Corruption
According to Global Integrity 2008, the regulations covering basic health and environmental standards in Pakistan are transparent, but are seldom enforced equally for all companies. Government officials conduct inspections, but typically accept bribes to ignore substandard practices. No effective control on environmental standards exists in Pakistan.
Political Corruption
In response to growing water scarcity, more farmers are engaging in informal negotiations and extra-legal transactions with irrigation agency officials to obtain water beyond their legal quotas. According to the Transparency International 2008, usually a small group of farmers favourably located in the upper reaches of the irrigation system receive extra water at the expense of their downstream counterparts. Farmers use political influence to win favour with irrigation officials. Farmers also ask local elected politicians to pressure irrigation staffers. In turn, politicians receive political support from these farmers to stay in office and irrigation officials benefit from promotions and favourable postings. The system of legal water quotas is generally no longer enforced. Functioning for decades now, this interlocking incentive system is considered by many a well-established 'working rule'. Corruption also undermines incentives to improve the system - for example, de-silting and reducing flow variability - as this would reduce the power of irrigation officials and influential farmers.
Pakistan Steel Mills (PSM) was privatised in 2006, but economic experts, opposition parties and the plant's employees consider the sale non-transparent and suspicious because it was sold at a remarkably low price and in a hurry. According to some estimates, the total assets of the mills are of a value of more than PKR 150 billion, but the government sold the plant and the belonging land for only PKR 21.7 billion. PSM was sold to a Saudi group which plans to set up a private sector steel manufacturing unit near PSM. Later in 2006, the Supreme Court of Pakistan declared that the privatisation of PSM was null and void because of major irregularities in the process.
Public Anti-Corruption Initiatives
Legislation: Pakistan ratified the United Nations Convention against Corruption in August 2007. Pakistan's anti-corruption laws include the Penal Code 1860, the Prevention of Corruption Act 1947, which was the first specialised anti-corruption law in the country, and the National Accountability Ordinance 1999 (NAO), which is the newest one. Most importantly, the NAO contains a passage stating that unexplained assets are seen as corruption and the responsibility to present proof that the assets were legitimately obtained rests with the accused. Acts of corruption and attempted corruption in the form of extortion, active and passive bribery, bribing a foreign official, abuse of office, and money laundering are illegal. The NAO criminalises both public and private sector corruption and sets the maximum penalty for corruption at 14 years rigorous imprisonment (implying hard labour) with a fine and confiscation of assets acquired through corruption in the name of the accused or the accused's dependents/beneficiaries. Attempts at establishing transparency are also found in Pakistan's Constitution, which now also contains sections concerning declaration of assets. However, the current state of anti-corruption legislation in the country is perceived to be in a state of disorder. Musharraf decided in October 2007 to pass the National Reconciliation Ordinance (NRO) that amended and essentially circumscribed the NAO, which has guided the country's anti-corruption work. The NRO has granted blanket immunity for past corrupt actions and provides for an automatic withdrawal of all corruption cases filed against public officials prior to 1999. It also bars legal action against ministers and parliamentarians. Access the Lexadin World Law Guide for a collection of legislation in Pakistan.
Government Strategies: Anti-corruption strategy in Pakistan has historically been synonymous with anti-corruption enforcement. It is only in the past decade that a strategic change towards combining enforcement with prevention occurred. The National Anti-Corruption Strategy (NACS) project was launched in 2002 by the National Accountability Bureau. The NACS is structured around the pillars of the National Integrity System, a concept taken from Transparency International and adapted to local conditions. According to the U4 Anti-Corruption Resource Centre 2008, the strategy is noteworthy both for its analysis and diagnosis of Pakistan's corruption challenges and for the level of detail included in its contents, particularly in terms of reform proposals. Although former President Musharraf publicly stated that eliminating corruption was a priority, the NACS primarily focuses on politicians, civil servants and businesspeople, while virtually ignoring the military and security personnel. The military's presence in the civil service and anti-corruption institutions expanded during Musharraf's time in office to become widespread. Although the new government has returned serving military personnel to their original assignments, this has left a vacuum in the civil service and anti-corruption institutions which still has to be filled. The implementation of the NACS has apparently been constrained by a lack of consistent political will. Whether the new administration will show commitment to implement and further develop the strategy remains to be seen.
Anti-Corruption Agency: Pakistan's supreme anti-corruption agency is the National Accountability Bureau (NAB), which was created by the National Accountability Ordinance 1999 (NAO) and replaced the defunct Ehtesab Bureau and Commission. It is in charge of corruption prevention, raising public awareness and enforcement of anti-corruption measures. The NAB is also empowered by the NAO to handle arrests, investigations and prosecutions in corruption cases. The NAB publishes quarterly and annual reports on its work and on developments in the major corruption cases. The majority of cases in the October-December 2008 report concerned public servants, whereas a smaller but increased number of cases concerned private sector businesspeople. Critics note that the NAB does not have oversight over the military; however, military personnel working in government offices, corporations and elsewhere are formally not exempted from the scrutiny of the NAB. Indeed, a number of government employees, politicians and senior military officials have been prosecuted and sentenced to prison in recent years. Another important and powerful group that is informally exempt from NAB oversight is judges. This might explain why the judiciary is one of the most corrupt institutions in Pakistan. Both the judiciary and military are meant to rely on internal mechanisms of accountability rather than be subject to the purview of the NAB. Those internal mechanisms have long been criticised as being ineffective, while the NAB itself has claimed many victories in the fight against corruption. The conviction rate of the NAB is 50% of all processed cases. The NAB further claims that PKR 200 billion of financial resources are being wasted through corrupt practices at higher government levels each year, while PKR 67 billion have fallen to lower level corruption every year. According to Transparency International Pakistan’s National Corruption Perception Survey 2009, 54% of the respondents felt that the NAB and provincial corruption agencies were least effective in combating corruption. In addition, nearly 70% of the respondents felt that the military and judiciary should be under the jurisdiction of the NAB. Examples and case studies of corruption scandals, arrests and ongoing investigations can be found on the NAB website, including investigations and arrests of staff and senior management of the banking system, businesspeople, and even NGOs. The NAB is said to be continuing the process of internal reforms to make it more efficient and independent. Transparency International Pakistan criticises NAB for applying a limited focus and says that no 'substantial reduction' in corruption has occurred during the era of Musharraf, despite small improvements during his initial three years in office. Sources also note that Musharraf used the NAB to prosecute rival politicians and officials from previous governments. The main political parties had declared in their manifestos before the February 2008 election that they would disband the NAB when in office, although continuing cooperation between the ruling PPP and the NAB shows no sign that this will actually occur.
Accountability Courts: Accountability courts were established in accordance with the National Accountability Ordinance 1999 (NAO) to deal with the need to dispose of corruption cases involving abuse of power, misappropriation of property, and kickbacks among other corruption-related crimes in an expedient manner. At present, 21 Accountability Courts are operating in Pakistan. The purpose of the courts is to adjudicate cases of people accused of corruption and to recover the proceeds of corrupt practices. However, several high-level corruption cases have been dismissed without financial penalties being imposed on the culprits by these accountability courts under the National Reconciliation Ordinance 2007 (NRO), including those against President Zardari. Many immune or pardoned beneficiaries of the NRO have since been appointed to important ministries and include ministers and public officials. The NRO essentially undermines the judiciary's capacity to enforce the NAO, which is still the main prevailing anti-corruption law. This development is perceived by local observers to have hurt the independence of the judiciary and to have led to an increase in political corruption.
Federal Investigation Agency (FIA): The FIA is a national investigative agency with a wide role in anti-terrorism, anti-corruption, human trafficking and copyright infringement policing. The FIA was established in 1975 in accordance with the FIA Act 1974 and superseded the Pakistan Special Police Establishment (PSPE). In 2005, the FIA led a series of high-profile raids on companies involved in video piracy. It was also reported that 110 FIA personnel were investigated for their alleged role in human trafficking and most of them were dismissed from service.
Anti-Corruption Establishments (ACEs): There are several provincial ACEs and anti-corruption laws in Pakistan, such as the Punjab Provincial Anti-Corruption Establishment and its supporting legislation. Provincial laws reportedly pose a challenge to the national anti-corruption efforts as they generally impose less severe punishments on those convicted of corruption than the National Accountability Ordinance provides for. ACEs also generally suffer from a lack of independence and autonomy that undermines their ability to effectively enforce anti-corruption laws. The National Anti-Corruption Strategy did envision the creation of linkages between the National Accountability Bureau and ACEs, but this has yet to happen. Meanwhile, the competing spheres of anti-corruption jurisdiction between the provinces and the national government remain a sensitive issue linked to debates over provincial autonomy and the right of provinces to undertake anti-corruption work in their own fashion.
Auditor General: The Office of the Auditor General of Pakistan is working toward more transparency and, in this spirit, is now publishing its annual reports and placing them on its website. Reports of collusion between auditors and other civil servants persist. The auditing of government expenditures is helped by a Public Accounts Committee of the National Assembly. The appointment of the head of the agency is done by the government and, according to Global Integrity 2008, political biases play a big role in the appointment. The state auditors are required to report any fraud detected or suspected by them to the Director General of Audit immediately. At this stage, the scope of audit is expanded to carry out detailed investigation. If there is evidence to show that some criminal offence has been committed, the matter is reported to the police and other law enforcing agencies. The case is registered against the suspected culprits for judicial probe and departmental inquiry. According to Global Integrity 2008, despite the knowledge of the fact that there is widespread corruption in government departments, the state audit has not played any effective role to forestall it. In the final analysis, the responsibility is shifted to lower level civil servants while the big fish remain immune to investigation and prosecution. Although it is reported that action is taken on the findings of the agency, critics note that the audit reports and investigations are not actually affecting the overall system in such a way as to change it for the better.
Ombudsman: The primary objective of the Office of the Wafaqi Mohtasib (Ombudsman) of Pakistan is to institutionalise a system for enforcing administrative accountability. The Ombudsman is appointed by the President for a five-year period and has far-reaching powers, empowered to investigate complaints and rectify injustices committed against a citizen through poor administration. The Ombudsman aims to investigate, redress and rectify any injustice done to a person through maladministration on the part of a federal agency or a federal government official. The Ombudsman has the same powers as civil courts to issue and enforce subpoenas, and to receive documents and evidence on affidavits. However, the Ombudsman is excluded from investigating complaints that are in any way connected to the departments and offices that deal with the military and defence, the judiciary, service matters, provincial matters and private matters. Government interference has made the office hesitant to go to trial; reportedly, the Ombudsman is mostly used to control the opposition party leadership and to give leverage in political bargaining to the ruling party. According to the Ombudsman Annual Report 2007, complaints filed by the public more than doubled in 2007 and a third of the complaints received were resolved within 6 months. According to the assessment of Global Integrity 2008, the Ombudsman is not very effective and is at times subject to external pressure from the government regarding initiation of investigations. The first action of an inquiry is started immediately, within a couple of weeks after the complaint being filed. The remainder of the process is slow. Complaints may take more than two months to be acted upon and complainants are reportedly often discouraged to make reports by office staff. Meanwhile, the agency or official against which the complaint is filed can manipulate or change the record, and most of the time the result of filing a complaint is disappointment. The Office of the Ombudsman makes its annual reports available to the public online.
E-Governance: The World Bank and the Asian Development Bank are assisting the Pakistani government in starting up e-governance in order to enhance transparency and curb corrupt practices. E-governance is gradually taking form. The Board of Investment (BOI) is publishing tender invitations, and many government departments are setting up websites in order to become more transparent. The Government of Pakistan Portal offers an online gazette, customs and tax services, utility connection and payment services as well as access to forms and information on business licensing and permits procedures. Provincial government websites, from that of the Government of North-West Frontier Province Portal to that of the Government of the Punjab Gateway, also provide information and services to companies and citizens concerning utility connections, land registration, company registration as well as licensing and permits procedures.
Public Procurement: While the government subscribes to the principles of international competitive bidding, corruption is pervasive in public procurement in Pakistan. However, the Public Procurement Regulatory Authority (PPRA) in Pakistan has taken steps toward reforming the process by implementing the Public Procurement Rules of 2004 in all public procurement agencies. Standardisation and streamlining of procurement procedures are meant to help minimise and prevent corruption and enhance transparency. All tenders are published on the PPRA website. Public Accounts Committees (PACs) at the federal and provincial levels have been formed and have been holding regular reviews of audit reports; however the capacity of PACs remains subject to debate. The National Accountability Bureau (NAB) is now requiring all procuring agencies for public contracts of works, services and goods worth PKR 50 million or above to complete contract evaluation forms intended to promote transparency and fairness in the procurement process. Transparency International Pakistan has played a major role in the struggle for transparency in public procurement, and made significant progress when Transparency International's Integrity Pact was adopted as an integral part of major public contracts. Integrity pacts are now mandatory for all contracts exceeding PKR 10 million. Companies which are found guilty of corruption in relation to public procurement are legally barred and blacklisted from future participation in procurement biddings, although it is possible to form a new company under a new name and then participate again. TI Pakistan was asked to monitor the purchase of USD 10.3 million worth of heavy earth-moving machinery and workshop equipment, and to compare the 2007 prices with similar procurement made earlier in 1994. According to the Transparency International 2008, even after a 15 percent devaluation of the PKR, TI Pakistan was able to ensure savings of 23-42 percent on excavators and bulldozers compared to their costs 13 years earlier. The process complied with the World Bank's international standards and was in line with the Public Procurement Rules of 2004. There is no independent complaint handling system within public procurement. Companies may direct their complaints to the procuring agency, which is obliged to set up a review committee to handle the complaint. If the company is dissatisfied with the decision, it can proceed to take the case to court and let the judiciary review the case.
Whistle-Blowing: The constitution contains provisions to protect civil servants and private sector employees who report cases of corruption from recrimination. However, Global Integrity 2008 reports that these protective provisions are not applied in practice and whistleblowers are commonly threatened if they pursue corruption cases. The National Accountability Bureau (NAB) provides an anti-corruption reporting telephone service to which corruption can be reported. In theory, the NAB is supposed to provide protection to private sector employees who report corruption, but information about the complainant is revealed in most of the cases in practice. The Wafaqi Mohtasib (Ombudsman) also provides an online corruption reporting mechanism as well as access to downloadable complaints forms. However, Global Integrity 2008 reports that most people do not put much trust in the institution to follow up on complaints. Provincial Anti-Corruption Establishments also offer their own reporting mechanisms.
General Comments on the Public Anti-Corruption Initiatives: Pakistan is, at the time of publication, clearly in a stage of transition. It is unclear how the country's anti-corruption laws, strategies and institutions are intended to be and eventually will or will not be affected by the change to a civil government in 2008. At the time of publication, neither the Government of Pakistan nor the National Accountability Bureau websites spell out any recent anti-corruption commitments. However, several reports maintain that the NAB, despite its uncertain future, continues to be used as a tool by the executive to target and discredit the political opposition.
Private Anti-Corruption Initiatives
Media: Freedom of the press and speech (aside from restrictive provisions made by the blasphemy law) is guaranteed by the Constitution of Pakistan (Art. 19). The Freedom of Information Ordinance 2002 provides for public access to government records, but is reported to have proved largely ineffective in practice as the government liberally restricts access to information by labelling records as 'sensitive'. Despite the fact that Pakistan has been under military rule, the media has been considered quite independent. President Musharraf's rule ushered in increased freedom for the print media and a liberalisation of broadcasting policies. Toward the end of his time in office, however, media rules were tightened under emergency rule. New legislation gave the broadcasting regulator more power to shut down television stations during the emergency rule and broadcasts of private television stations via cable were disrupted. The authorities have tried to discredit certain reporters as persons seeking to harm national interests, or as being unpatriotic. Critical reporters experience intimidation and harassment by the military intelligence service. All this pressure and interference on press freedom has resulted in many members of the press engaging in self-censorship and being reluctant to report on sensitive issues that might antagonise the military or the government, such as reports on military corruption. Nevertheless, as Transparency International Pakistan's National Corruption Perception Survey 2009 shows that 77% of the respondents believe that the media, especially the electronic media, has played a positive role in combating corruption. Pakistan ranks 152nd out of 173 countries on Reporters Without Border's Worldwide Press Freedom Index 2008 and Freedom House 2008 ranks the country as 144th out of 195 countries in relation to press freedom and describes the country's press environment as 'not free'.
Civil Society: Pakistan's civil society is characterised by a multitude of NGOs. There are over 70,000 civil society organisations (CSOs) operating in Pakistan and Global Integrity 2008 describes civil society in the country as 'very strong'. Although registration is not really a problematic issue for CSOs, the government and the military are suspicious of civil society groups and attempt to interfere or make situations difficult for them. Nevertheless, the Pakistani government has accepted assistance and collaboration from Transparency International Pakistan in relation to anti-corruption policy formulation. Governmental departments have been organising consultations with CSOs on other policy issues. While this trend indicates that the relationship between the government and some CSOs has become less adversarial and more constructive, the government can and has effectively shut CSOs out of policy formulation when in the government's interest to do so.
Transparency International (TI) Pakistan: TI Pakistan is a national chapter of TI that works to counter corruption and increase accountability, both internationally and nationally. TI Pakistan has been very active in increasing public and political awareness of how corruption is obstructing development and keeping people locked in poverty. TI Pakistan has managed to engage the government in anti-corruption work, persuading them to adopt the TI Integrity Pact in public procurement among other achievements. In 2001, TI Pakistan signed an anti-bribery Integrity Pact with the Karachi Water and Sewerage Board (KW&SB) for the procurement of engineering and supervision services, and implemented the Least Cost Selection Method for the tender for the Greater Karachi Water Supply Scheme. Also, in 2005, TI Pakistan signed a memorandum of understanding with the Trading Corporation of Pakistan (TCP) for the implementation of an Integrity Pact and Transparent Public Procurement Agreement to ensure integrity and transparency in TCP's procurement systems. In June 2008, an e-complaint system through which citizens can lodge complaints regarding service deliveries was inaugurated in collaboration with TI Pakistan and sponsored by the Swiss Agency for Development & Cooperation (SDC) in the Province of Punjab (read more about the TI Pakistan-assisted City District Government Rawalpindi e-complaint centre). In February 2009 Commissioner Multan took the assistance of Transparency International Pakistan for transparent tendering. Commissioner Multan signed an MOU with Syed Adil Gilani of TI Parkistan. The Multan Division has been granted a sum of Rs 13.5 billion by the Prime Minister under the Multan Development Package.
Centre for Peace and Development Initiatives - Pakistan (CPDI-Pakistan): CPDI-Pakistan is involved in issues of transparency, such as freedom of information, rule of law, etc. The organisation works to develop awareness in the population that public participation is important for improving accountability and transparency. CPDI-Pakistan is engaged in promoting access to information and in monitoring the budget-making process, as well as the legislative process. The organisation is working to enhance transparency in the policy-making process.
Resources
The websites listed below provide useful facts on Pakistan as well as contacts and tools for companies operating in Pakistan:
Business Fighting Corruption An online resource centre for business on collective action to avoid corruption which contains a guide and resources for partnerships with companies and other stakeholders to fight against corruption.
UNCAC Status: Signed on 9 December 2003. Ratified 31 August 2007.
Status on UNCAC Implementation This field describes the country's status on the United Nations Convention against Corruption. Please note any declarations and reservations made upon ratification. The list of signatories can be found on the UNODC website. Read Transparency International's summary and assessment of the UNCAC.
Transparency CPI This field consists of the score for the country in question on the Corruption Perceptions Index from Transparency International as well as its ranking.
Country Risk Classification The classification of countries by risk category has the aim of providing OECD countries with a basis for calculating the premium interest rate to be charged to cover the risk of non-repayment of export credits. Countries are placed in risk categories 0 - 7, with 0 being the lowest risk category and thus the least expensive. Conversely, premium group 7 is the highest risk category. Each classification is comprised of 2 components: 1) an assessment of the country's economic/financial situation, and 2) its overall political stability. Access the complete list of OECD Country Risk Classification figures.
Home
Site map
Contact
Print
Back
To top