Pakistan, IMF reach $1.2bn staff-level deal

Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on the fourth review of the $7 billion Extended Fund Facility (EFF), paving the way for the release of around $1.2 billion in fresh financing.

The agreement, reached after discussions between IMF officials and Pakistani authorities, still requires approval from the IMF Executive Board. Once approved, Pakistan is expected to receive approximately $1 billion under the EFF and another $210 million through the Resilience and Sustainability Facility (RSF).

The latest disbursement would take total funding released to Pakistan under the two programmes to around $5.7 billion.

The IMF team, led by Iva Petrova, held talks with Pakistani officials from September 23 to October 7 as part of the fourth EFF review, third RSF review and the 2026 Article IV consultation.

The IMF said Pakistan’s economic programme remained broadly on track despite external pressures, including the impact of the Middle East conflict. It estimated that the economy grew by 3.6 per cent in fiscal year 2026, while real GDP growth reached 4 per cent during the first three quarters.

Inflation eased to around 10.3 per cent in September after reaching a peak in May. Meanwhile, strong remittances helped keep the current account broadly balanced, while foreign exchange reserves increased to about $21.5 billion by the end of September.

Despite these improvements, the IMF warned that Pakistan continues to face significant risks from geopolitical tensions, fluctuating energy prices, tighter global financial conditions and disruptions to international trade.

The fund stressed the need for strict fiscal discipline under the FY27 budget, including maintaining an underlying primary surplus of 2 per cent of GDP. It also called for stronger tax administration through digital invoicing, risk-based audits and greater use of third-party data.

The IMF urged Pakistan to continue reforms aimed at improving public financial management, reducing debt-related risks and lowering government financing costs.

On social protection, the fund noted that spending on health and education had increased from 2.2 per cent of GDP in FY24 to 2.5 per cent in FY26. The government plans to raise this share further to 2.8 per cent in FY27.

The IMF also called for the timely phase-out of the government’s fuel support scheme, describing it as costly and broadly targeted. It said any future fuel assistance should be temporary, limited and directed towards vulnerable households through existing social protection programmes.

The State Bank of Pakistan was advised to maintain a sufficiently tight monetary policy until inflation returns sustainably to its target range. The IMF also supported continued exchange-rate flexibility and further accumulation of foreign exchange reserves.

The fund stressed that Pakistan must address problems in the energy sector to prevent another buildup of circular debt. It called for timely tariff adjustments, improved distribution efficiency, greater private-sector participation and measures to reduce gas losses.

Under the RSF, Pakistan is also continuing reforms focused on climate resilience, including climate-sensitive public investment, disaster risk financing, irrigation reforms, energy efficiency and transport decarbonisation.