ISLAMABAD — Pakistan has reached a staff-level agreement with the International Monetary Fund (IMF), marking a key milestone in the country’s ongoing economic stabilization program and unlocking more than $1.2 billion in potential new financing.
The agreement covers the third review under Pakistan’s Extended Fund Facility (EFF) and the second review of the Resilience and Sustainability Facility (RSF). Final disbursements are subject to approval by the IMF’s Executive Board.
Once approved, Pakistan will receive $1 billion under the EFF and approximately $210 million through the RSF, bringing total disbursements under both facilities to around $4.5 billion.
Economy Broadly on Track, IMF Says
The IMF said Pakistan’s economic performance has remained broadly consistent with program objectives. Economic activity strengthened following a recovery in fiscal year 2025 and has continued to gain momentum in the current fiscal year.
Inflation has moderated, the current account remains contained and foreign exchange reserves have improved, offering signs of stabilisation after a prolonged period of macroeconomic stress.
However, the Fund warned that rising geopolitical tensions in the Middle East pose downside risks, particularly through higher energy prices and tighter global financial conditions.
Fiscal Discipline and Revenue Mobilisation
Pakistani authorities reiterated their commitment to fiscal consolidation, targeting a primary surplus of 1.6% of GDP in FY26 and 2% in FY27. The strategy focuses on expanding the tax base, improving expenditure management and safeguarding priority spending.
Reforms at the Federal Board of Revenue (FBR) are progressing under a broad transformation plan. Measures include stronger audit enforcement, expanded digital invoicing, enhanced production monitoring and improvements in internal governance.
A dedicated tax policy office is also developing a medium-term reform framework aimed at ensuring stability and neutrality in Pakistan’s tax system.
Protecting Vulnerable Groups
Social protection remains a cornerstone of the reform agenda. The government has committed to expanding the Benazir Income Support Programme (BISP) through inflation-linked cash transfers, wider beneficiary coverage and more efficient payment mechanisms.
Spending on health and education is also set to increase, reflecting a focus on long-term human capital development alongside short-term stabilization.
Tight Monetary Policy to Continue
The State Bank of Pakistan will maintain a tight, data-dependent monetary policy to anchor inflation expectations. The IMF noted that interest rates could be raised further if price pressures re-emerge, particularly from volatile global food and fuel markets.
Exchange rate flexibility will remain a key tool for absorbing external shocks.
Energy Sector and Structural Reforms
The IMF underscored the need to restore the financial viability of the energy sector. Commitments include timely tariff adjustments to ensure cost recovery, curbing untargeted subsidies and reducing circular debt.
Structural reforms also extend to privatizing loss-making state-owned enterprises, improving governance, lowering regulatory barriers and fostering private-sector-led growth.
Climate Resilience Under RSF
Under the RSF, Pakistan has advanced reforms aimed at strengthening climate resilience. Progress has been reported in green mobility initiatives, climate data systems and the management of climate-related financial risks.
Future priorities include improving water resilience, enhancing disaster risk financing and aligning energy sector reforms with climate objectives.
The agreement builds on earlier IMF support, including a $1.2 billion tranche released in December 2025. Pakistan’s current reform program is anchored in the $7 billion IMF bailout approved in 2024, which continues to serve as the framework for economic recovery and stability.
