Pakistan and the International Monetary Fund (IMF) remain divided over rules governing direct government contracts to state-owned enterprises, delaying the approval of a new public procurement framework.
The disagreement centres on when government departments can award contracts to state-owned entities without competitive bidding and how such deals should be disclosed.
Pakistan was required under the IMF’s Governance and Corruption Diagnostic Assessment action plan to approve and notify the new Public Procurement Regulatory Authority (PPRA) Rules 2026 by June, replacing the existing 2004 rules. The deadline was missed amid differences over direct contracting with state-owned enterprises (SOEs).
The government has proposed tighter procurement rules covering direct contracts, contractor eligibility and the responsibilities of federal secretaries and department heads in awarding public projects.
Under the proposed framework, contractors, their owners, beneficial owners and directors could be barred from government procurement if they face certain court proceedings that could result in bankruptcy or have previously been convicted.
Federal secretaries and heads of departments would also be given explicit responsibility for decisions involving the award of public contracts.
The main disagreement, however, is over proposed Rule 32-F, which covers direct contracting with SOEs.
The IMF has proposed that government procuring agencies should generally not award contracts directly to state-owned professional, autonomous or semi-autonomous bodies for goods, works, services or consultancy.
Exceptions would be allowed only for projects involving time-sensitive, scattered or remotely located works and services where direct contracting is considered to be in the public interest.
The IMF has also proposed that qualifying direct contracts be processed through the E-Pak Acquisition and Disposal System (E-PADS), with the SOE carrying out the work primarily through its own resources rather than relying on private-sector partners.
Where specialised components need to be outsourced, subcontracting would be capped at 40% of the total value of the work.
Pakistan has accepted the 40% subcontracting condition but has proposed allowing the relevant authority to change the financial thresholds prescribed under the rule.
The proposed flexibility has emerged as a key concern because SOEs can receive projects directly from government departments and subsequently outsource part of the work to private companies.
The IMF wants stronger safeguards against such arrangements to reduce procurement risks and improve transparency.
Under the IMF proposal, exceeding the 40% subcontracting limit would be treated as a material deviation. This would bring the case within provisions covering collusive, coercive, corrupt, fraudulent and obstructive practices.
The IMF has also called for direct contracting to be limited to exceptional circumstances and for the reasons behind such decisions to be formally recorded.
It has proposed that the head of the procuring agency submit a written determination through E-PADS explaining why exceptional circumstances justify the direct award, along with an undertaking that all prescribed conditions have been met.
The IMF further wants this determination and undertaking to be made publicly available through E-PADS.
Pakistan’s draft rules currently require the head of the procuring agency to submit an undertaking through E-PADS confirming compliance with the conditions. However, they do not contain the same explicit requirement to publicly disclose the determination explaining the exceptional circumstances.
The differences could still be addressed by the Cabinet Committee on Legislative Cases (CCLC) before the rules are presented to the federal cabinet for final approval.
The Ministry of Finance recently told the committee on economic governance systems that the draft procurement rules had been endorsed at the government level and were awaiting CCLC approval.
The final rules will determine how far the government can use direct contracting with SOEs and how much transparency will be required when such contracts are awarded without competitive bidding.
