The International Monetary Fund (IMF) has urged Pakistan to significantly restrict the direct award of government contracts to state-owned enterprises (SOEs), arguing that such arrangements should only be permitted in exceptional and clearly justified circumstances.
The disagreement between Pakistan and the IMF has delayed the approval and notification of the country’s proposed Public Procurement Regulatory Authority (PPRA) Rules 2026, which are intended to replace the Public Procurement Rules 2004.
Under Pakistan’s commitments in the IMF’s Governance and Corruption Diagnostic Assessment action plan, the government was required to approve and notify the new procurement rules by June 2026.
The deadline was missed amid differences over provisions governing direct contracts between government agencies and state-owned entities.
IMF seeks tighter rules for direct SOE contracts
The main disagreement centres on Rule 32-F, which deals with direct contracting between government procuring agencies and SOEs.
The IMF has proposed that government agencies should generally avoid directly awarding contracts for goods, works, services or consultancy to state-owned professional, autonomous or semi-autonomous organisations.
Under the proposed approach, direct contracting would only be permitted in limited circumstances where there is a clear justification for avoiding competitive procurement.
The IMF has suggested exceptions for projects involving urgent, geographically dispersed or remote works and services, provided that direct contracting is determined to be in the public interest.
The proposal is aimed at increasing competition and transparency in government procurement while reducing the scope for preferential treatment of state-owned entities.
Pakistan accepts 40% subcontracting limit
The proposed procurement framework also addresses subcontracting by SOEs that receive government contracts directly.
Where a project requires specialised work that cannot be completed entirely by the contracted state-owned organisation, the IMF has proposed that subcontracting should be capped at 40% of the total value of the work.
Pakistan has accepted the 40% ceiling but has proposed giving the relevant authority the ability to revise the financial limits associated with the provision from time to time.
Under the IMF’s proposed framework, exceeding the permitted subcontracting threshold could constitute a material deviation from procurement requirements.
Such conduct could potentially fall under provisions dealing with collusive, coercive, corrupt, fraudulent or obstructive practices.
New procurement rules include bidder disqualification provisions
The proposed PPRA Rules 2026 also contain provisions concerning the eligibility of companies and individuals seeking government contracts.
Contractors, beneficial owners, owners and directors involved in certain court proceedings that could result in bankruptcy may face disqualification from participating in public procurement.
Individuals or entities with relevant previous convictions could also be barred from bidding, subject to the applicable provisions of the new rules.
These measures are intended to strengthen integrity checks and improve the overall transparency of Pakistan’s public procurement system.
IMF seeks greater transparency in direct contracts
The IMF has also called for greater disclosure when a government agency approves a direct contract with a state-owned enterprise.
The demand forms part of the lender’s broader push for stronger governance, competitive procurement and greater transparency in public-sector contracting.
The unresolved differences over Rule 32-F have delayed the finalisation of the PPRA Rules 2026, leaving Pakistan and the IMF to continue discussions over the conditions under which government agencies can bypass competitive bidding and directly engage state-owned companies.
The outcome of these negotiations will determine how Pakistan’s new public procurement framework balances the operational role of SOEs with the IMF’s demand for greater competition and accountability in government contracting.
