IMF deal could unlock US$1.21 billion for Pakistan as economic reforms continue

The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan that could unlock about US$1.21 billion in financing, subject to approval by the IMF Executive Board.

The agreement covers the fourth review of Pakistan’s US$7 billion Extended Fund Facility (EFF) and the third review of its Resilience and Sustainability Facility (RSF), while also completing the IMF’s 2026 Article IV consultation.

About US$1 billion would come through the EFF and US$210 million through the RSF. If approved by the Executive Board, total disbursements under the two arrangements would rise to about US$5.7 billion.

The IMF team, led by mission chief Iva Petrova, held discussions with Pakistani authorities in Karachi and Islamabad from 23 September to 7 October.

IMF says economy remains stable

Petrova said Pakistan had maintained economic stability despite the impact of the conflict in the Middle East.

“Supported by the EFF, the authorities have successfully navigated the impact of the Middle East conflict, and strong policies have helped preserve macroeconomic stability,” she said.

Pakistan’s economy grew by about 4 per cent during the first three quarters of fiscal year 2026, while full-year growth is estimated at 3.6 per cent.

The IMF said economic momentum had weakened because of higher energy prices and supply disruptions linked to the regional conflict.

Inflation had also eased from its peak in May. Consumer price inflation stood at about 10.3 per cent in September, while core inflation remained contained.

The current account was broadly balanced, supported by strong remittances. Pakistan’s gross foreign exchange reserves reached about US$21.5 billion at the end of September, according to figures cited in the latest review.

However, the IMF said Pakistan remained exposed to external financing needs, including for reserve accumulation and debt repayments.

Fiscal and tax reforms remain priorities

Under the programme, Pakistan has committed to an underlying primary surplus of 2 per cent of GDP in fiscal year 2027.

The IMF said authorities would continue efforts to broaden the tax base and improve tax administration, including through risk-based audits, digital invoicing and greater use of third-party data.

The government is also expected to strengthen expenditure management while increasing spending on health, education and social protection.

The IMF has previously said health and education spending increased from about 2.2 per cent of GDP in fiscal year 2024 to 2.5 per cent in fiscal year 2026, with a target of 2.8 per cent in fiscal year 2027.

Energy sector reforms

Energy sector reforms remain a central part of the programme.

The IMF said Pakistan needed to ensure timely tariff adjustments, reduce circular debt and improve the financial viability of the electricity and gas sectors.

The programme also calls for greater private-sector participation in electricity distribution, improved competition and measures to reduce losses in the gas sector.

Pakistan has also committed to phasing out broad-based fuel support and avoiding energy subsidies that the IMF considers costly and poorly targeted.

The State Bank of Pakistan is expected to maintain an appropriately tight monetary policy, preserve exchange-rate flexibility and continue rebuilding foreign exchange reserves.

External risks remain

The IMF said Pakistan continued to face risks from geopolitical tensions, volatile energy prices, tighter global financial conditions and disruptions to international trade.

The Middle East conflict is particularly significant for Pakistan because of its exposure to energy imports from the Gulf, remittances from Pakistani workers in the region and external financing conditions.

The RSF component of the programme will support measures to strengthen Pakistan’s resilience to climate-related risks, including reforms involving water management, disaster-risk financing, electricity subsidies and transport decarbonisation.

The staff-level agreement remains subject to approval by the IMF Executive Board before the funds can be disbursed.

Pakistan’s current EFF programme was approved in September 2024 as a 37-month arrangement worth US$7 billion, while the RSF provides additional financing for climate-related reforms. The IMF’s previous review in March 2026 also paved the way for about US$1.21 billion in financing following Board approval.

Pakistan’s Finance Minister Muhammad Aurangzeb has repeatedly said the government remains committed to implementing the IMF programme and maintaining fiscal and structural reforms.