The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan on reviews of its ongoing lending programmes, a development that could pave the way for the release of around $1.21 billion once the agreement receives approval from the Fund’s Executive Board.
The proposed financing includes approximately $1 billion under the Extended Fund Facility (EFF) and another $210 million through the Resilience and Sustainability Facility (RSF), which focuses on climate-related challenges. If approved, total disbursements under the two programmes would rise to about $5.7 billion.
An IMF mission led by Iva Petrova held discussions with Pakistani officials in Karachi and Islamabad between September 23 and 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 managed to maintain overall macroeconomic stability despite the economic fallout from the conflict in the Middle East. The IMF said policy measures helped the country cope with higher energy costs and disruptions to supplies.
Economic Conditions Show Improvement
Pakistan’s real GDP growth reached around 4% during the first three quarters of FY26, while full-year growth is estimated at 3.6%.
Inflation has also eased from its recent peak. Headline inflation fell to around 10.3% in September, after reaching a higher level in May, while core inflation remained relatively contained.
The country’s external position also showed improvement. The IMF said Pakistan’s current account remained broadly balanced during FY26, helped by strong workers’ remittances. Foreign exchange reserves increased to approximately $21.5 billion by the end of September.
Despite these improvements, the Fund warned that Pakistan remains exposed to several external risks, including geopolitical tensions, fluctuations in energy prices, tighter global financial conditions and disruptions to international trade.
IMF Calls for Stronger Fiscal Reforms
The IMF stressed that Pakistan would need to implement its FY27 budget firmly and maintain an underlying primary surplus equivalent to 2% of GDP. The objective is to put public debt on a sustainable downward trajectory.
The Fund also called for further improvements in tax administration. Among the measures it highlighted were risk-based audits, digital invoicing and greater use of third-party data to improve tax compliance.
At the same time, the IMF urged Pakistan to work towards a simpler and more equitable taxation system.
The Fund also emphasised the importance of stronger public financial management, more efficient public investment and procurement, and measures to reduce the risks associated with the government’s large financing requirements.
More Spending on Health and Education
The IMF 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, this allocation is expected to increase further to 2.8% of GDP in FY27, reflecting efforts to strengthen investment in human development.
The Fund also called for timely adjustments to energy tariffs and measures to bring down costs. It warned that without reforms, inefficiencies in the electricity and gas sectors could contribute to another buildup of circular debt.
Monetary Policy and Reserves
The IMF said the State Bank of Pakistan should continue maintaining an appropriately tight monetary policy stance to ensure inflation moves sustainably towards its target range.
It also supported continued flexibility in the exchange rate and further efforts to build the country’s foreign exchange reserves.
IMF Pushes for Structural Changes
Beyond immediate economic stabilisation, the IMF said Pakistan needs deeper structural reforms to shift the economy towards higher-value activities and improve productivity.
The Fund called for stronger competition, fewer regulatory and trade barriers, progress on privatisation and better governance of state-owned enterprises.
It also stressed the need to strengthen governance and anti-corruption institutions.
According to the IMF, a fairer tax system, greater investment in human and physical capital, improvements in the energy sector and deeper financial markets could help Pakistan increase productivity, create jobs, attract private investment and expand exports.
Climate Reforms Also Under Focus
Under the Resilience and Sustainability Facility, the IMF said Pakistan had made progress in incorporating climate risks into public investment planning and improving systems for financing disaster-related risks.
The Fund said continued reforms in these areas would help strengthen Pakistan’s ability to deal with climate-related shocks.
The latest staff-level agreement is an important step, but the financing will not be released immediately. The proposed deal must first be approved by the IMF Executive Board, after which the funds can be disbursed to Pakistan. :::
