Pakistan and the International Monetary Fund (IMF) remain divided over proposed rules governing the direct award of government contracts to state-owned enterprises (SOEs), a disagreement that has delayed the country’s planned overhaul of public procurement regulations. At the centre of the dispute is public procurement and whether government agencies should be allowed to award contracts to SOEs without competitive bidding.

The IMF has called for direct contracting to be permitted only under exceptional circumstances, with detailed justification and public disclosure. The government, meanwhile, has proposed its own conditions that would allow procuring agencies to engage SOEs directly in certain situations.

The disagreement has emerged as Pakistan attempts to strengthen governance and reduce corruption risks under the IMF’s Governance and Corruption Diagnostic Assessment action plan.

New procurement rules miss deadline

Pakistan was required to approve and notify the Public Procurement Regulatory Authority (PPRA) Rules 2026 by June, replacing the existing 2004 regulations. The deadline was missed amid unresolved differences over direct contracts involving SOEs.

Sources said the Ministry of Finance recently informed the Committee on Economic Governance Systems that the new rules had been endorsed by the minister in charge of the Cabinet Division, a position held by Prime Minister Shehbaz Sharif.

The draft is now awaiting consideration by the Cabinet Committee on Legislative Cases (CCLC), according to officials.

Planning Minister Ahsan Iqbal, who heads the governance committee, said the Finance Ministry had indicated that the rules were with the CCLC and were expected to be approved at its next meeting.

A Finance Ministry spokesperson said draft rules or amendments are prepared by the relevant ministries and institutions after consultation with stakeholders before being submitted to the CCLC with the approval of the minister concerned.

IMF seeks tighter controls on SOE contracts

The main disagreement concerns proposed Rule 32-F, which deals with the direct award of contracts to state-owned organisations.

According to sources, the IMF has recommended that procuring agencies should generally not directly contract SOEs, including professional, autonomous and semi-autonomous bodies belonging to federal or provincial governments.

Exceptions would be allowed for works and services that are time-sensitive, scattered, remotely located or clearly in the public interest.

The IMF’s proposed framework would also require direct contracts to be processed through the E-Pak Acquisition and Disposal System (E-PADS), increasing transparency and creating a public record of such transactions.

The state-owned entity receiving the contract would be expected to complete the work using its own resources rather than bringing in private-sector partners through joint ventures or subcontracting arrangements.

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40% subcontracting limit becomes key dispute

The IMF has proposed allowing SOEs to subcontract specialised components of projects where necessary, but such subcontracting would be capped at 40% of the total value of the work.

The government has accepted the 40% threshold but has proposed language allowing the limit to be modified by the relevant authority from time to time.

The proposed provision states that financial thresholds contained in the rule could be changed by the authority.

That flexibility has raised concerns because SOEs can receive government contracts without competitive bidding and subsequently transfer substantial portions of the work to private companies.

The IMF’s position is aimed at closing what it sees as a potential governance loophole and preventing arrangements in which public contracts are effectively passed on to private firms without an open bidding process.

Under the IMF proposal, subcontracting beyond the permitted threshold could constitute a material deviation and potentially fall within categories including collusive, coercive, corrupt, fraudulent or obstructive practices.

IMF wants exceptional deals publicly disclosed

Another significant difference involves transparency surrounding exceptional direct contracts.

The IMF has proposed that direct awards to SOEs should only be made in exceptional circumstances. In such cases, the head of the procuring agency would have to submit a written determination through E-PADS explaining why an exception was necessary.

The official would also have to provide an undertaking confirming that all relevant conditions had been satisfied.

Crucially, the IMF wants both the determination and undertaking to be publicly available through E-PADS.

The government’s draft rules, however, reportedly require the head of the procuring agency to submit an undertaking through E-PADS but do not explicitly require public disclosure of the determination explaining the exceptional circumstances.

The CCLC could still amend the wording before the rules are placed before the federal cabinet for final approval.

Tougher eligibility rules proposed

The proposed procurement framework would also introduce stricter eligibility requirements for contractors.

Individuals and companies facing court proceedings that could potentially result in bankruptcy or conviction would be barred from bidding for government contracts. The restrictions would extend to contractors, owners, beneficial owners and directors.

The rules would also strengthen the responsibilities of federal secretaries and heads of procuring agencies, giving them explicit oversight of government procurement processes.

PPRA Managing Director Hasanat Qureshi said the existing 2004 rules had become outdated and that the authority had therefore proposed a comprehensive set of amendments.

The proposed regulations would also empower procuring agencies to blacklist bidders for up to 10 years for corrupt or fraudulent practices and for up to five years for providing false information.

Competitive bidding to remain mandatory

Under the proposed framework, all public procurement above Rs700,000 would have to be conducted through competitive bidding.

Federal secretaries and heads of procuring agencies would have overall responsibility for supervising procurement and ensuring compliance with applicable laws and regulations.

The rules would also introduce additional scrutiny for major contracts.

A third-party validation committee would be established to review bids worth between Rs500 million and Rs2 billion, while an external evaluation committee would be required for procurement exceeding Rs2 billion.

The proposed changes represent a significant attempt to strengthen Pakistan’s public procurement system and reduce opportunities for corruption. However, the unresolved dispute over direct contracting with SOEs remains a key hurdle.

Until Pakistan and the IMF reach agreement on the contested provisions, particularly Rule 32-F, the new procurement framework is likely to remain in the approval process.