ISLAMABAD: The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan following the latest reviews of the country’s economic programme, paving the way for up to $1.21 billion in fresh financing, subject to approval by the IMF Executive Board.
The agreement covers the fourth review under Pakistan’s 37-month Extended Fund Facility (EFF) and the third review under the 28-month Resilience and Sustainability Facility (RSF).
Once approved by the Executive Board, Pakistan is expected to receive around $1 billion under the EFF and another $210 million under the RSF. The disbursements would bring total financing released under the two arrangements to approximately $5.7 billion.
An IMF team led by Iva Petrova held discussions with Pakistani authorities in Karachi and Islamabad from September 23 to October 7. The talks covered the latest programme reviews as well as the IMF’s 2026 Article IV consultation.
According to the Fund, Pakistan has maintained macroeconomic stability despite the effects of the Middle East conflict. It said strong economic policies had helped the country absorb higher energy prices and supply disruptions.
Pakistan’s real gross domestic product (GDP) growth reached 4% during the first three quarters of fiscal year 2026, while full-year growth is estimated at 3.6%.
Headline inflation declined to around 10.3% in September after reaching a peak in May, while core inflation remained contained.
The country’s current account remained broadly balanced during FY26, supported by strong remittance inflows. Gross foreign exchange reserves also increased to around $21.5 billion by the end of September.
Despite these improvements, the IMF warned that Pakistan continues to face significant risks. These include geopolitical tensions, fluctuations in global energy prices, tighter international financial conditions and possible disruptions to trade.
IMF calls for strict implementation of FY27 budget
The IMF said Pakistan would need to firmly implement its FY27 budget, with an underlying primary surplus target of 2% of GDP. The objective is to place public debt on a sustainable downward path.
The Fund called for further improvements in revenue administration, including risk-based audits, digital invoicing and greater use of third-party data.
It also urged Pakistan to develop a simpler and fairer taxation system capable of improving revenue collection while reducing distortions in the economy.
The IMF stressed the need to strengthen public financial management, improve the efficiency of public investment and procurement and reduce risks associated with debt rollovers at a time when Pakistan faces substantial financing requirements.
Health and education spending to increase
The Fund noted that Pakistan has increased spending on health and education from 2.2% of GDP in FY24 to 2.5% in FY26.
According to the authorities’ plans, social-sector spending is expected to rise further to 2.8% of GDP in FY27.
The IMF also emphasised the importance of timely adjustments to energy tariffs and cost-reduction measures to prevent another accumulation of circular debt.
It called for improvements in the efficiency of Pakistan’s electricity and gas sectors.
Monetary and exchange-rate policies
On monetary policy, the IMF said the State Bank of Pakistan should maintain an appropriately tight policy stance to ensure that inflation returns sustainably to its target range.
The Fund also backed continued exchange-rate flexibility and further accumulation of foreign exchange reserves to strengthen Pakistan’s external position.
IMF stresses structural reforms
The IMF’s Article IV assessment also called for broader structural reforms aimed at shifting Pakistan’s economy towards higher-value economic activities and reducing productivity gaps with comparable economies.
The Fund identified strengthening competition, reducing regulatory and trade barriers, advancing privatisation and improving the governance of state-owned enterprises as important priorities.
It also called for stronger governance and anti-corruption institutions.
According to the IMF, these reforms, combined with a fairer taxation system, greater investment in human and physical capital, improvements in the energy sector and deeper financial markets, could help increase productivity, employment, private investment and exports.
Climate and disaster-risk reforms
Under the Resilience and Sustainability Facility, the IMF said Pakistan had made progress in incorporating climate-related considerations into public investment planning.
The country has also taken steps to strengthen disaster-risk financing, according to the Fund.
The IMF said Pakistan’s broader reform agenda would continue to include reducing regulatory and trade barriers, advancing privatisation, improving the governance of state-owned enterprises and strengthening anti-corruption institutions.
The latest agreement is a staff-level understanding and does not immediately release the funds. The proposed financing remains subject to approval by the IMF Executive Board, after which Pakistan could access approximately $1.21 billion under the two programme reviews.
