Pakistan and the International Monetary Fund (IMF) have finalized a staff-level agreement covering the fourth review of the Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF). This agreement paves the way for approximately $1.2 billion in additional funding, subject to approval by the IMF Executive Board.
The announcement came on October 7 following discussions between an IMF delegation led by Iva Petrova and Pakistani officials in Karachi and Islamabad from September 23 to October 7. These talks were part of the 2026 Article IV consultation and the reviews of the two IMF programs.
Upon approval by the Executive Board, Pakistan would gain access to around $1 billion under the EFF and about $210 million under the RSF, bringing total disbursements under both arrangements to roughly $5.7 billion. The IMF noted that program implementation under the EFF has generally stayed on course despite a challenging external environment, while Pakistani authorities have advanced climate-related reforms under the RSF.
The IMF highlighted that Pakistan has managed the economic impact of the Middle East conflict effectively with the support of the EFF. Strong policy measures have helped maintain macroeconomic stability, with real GDP growth reaching 4 percent in the first three quarters of fiscal year 2026. Although higher energy prices and supply disruptions slowed momentum somewhat, growth for FY26 is estimated at 3.6 percent.
Headline inflation, which peaked in May, eased to about 10.3 percent in September, and core inflation remained contained. The current account was broadly balanced in FY26, supported by robust remittances, while gross reserves increased to approximately $21.5 billion by the end of September.
The IMF also pointed to sovereign rating upgrades and renewed access to international markets as signs of strengthened policy credibility. However, it cautioned that risks remain elevated due to geopolitical tensions, volatile energy prices, tighter global financial conditions, and potential trade disruptions.
Key policy priorities outlined for Pakistan include maintaining fiscal discipline, enhancing public financial management, protecting social spending, ensuring an appropriate monetary stance with exchange rate flexibility, and improving the financial health of the energy sector. The IMF emphasized that implementing the FY27 budget, which targets an underlying primary surplus of 2 percent of GDP, is crucial for putting public debt on a sustainable downward trajectory.
Further reforms in revenue administration, such as risk-based audits, digital invoicing, and increased use of third-party data, were recommended. Social spending on health and education has risen from 2.2 percent of GDP in FY24 to 2.5 percent in FY26, with plans to increase it to 2.8 percent in FY27. The fund also noted that targeted cash-transfer programs are set to expand, while urging a prompt phase-out of the costly and broadly targeted fuel support scheme.
Khurram Schehzad, Advisor to the Finance Minister, described the agreement as a significant milestone in Pakistan’s economic stabilization and reform efforts. He highlighted the IMF’s recognition of broadly on-track program implementation and the role of strong policies in preserving macroeconomic stability amid external shocks.
Schehzad also pointed to the rise in foreign exchange reserves to about $21.5 billion, a balanced current account supported by remittances, sovereign rating upgrades, and renewed international market access as positive indicators cited by the IMF. He noted progress in public financial management, revenue administration, energy sector reforms, and climate initiatives under the RSF.
He further emphasized the broader reform agenda, including privatization, governance of state-owned enterprises, competition, trade and regulatory reforms, governance improvements, and financial market development. Schehzad stressed the importance of sustaining this reform momentum to bolster investment, exports, productivity, and job creation.
The staff-level agreement is pending consideration and approval by the IMF Executive Board. If approved, the disbursements would provide Pakistan with about $1.2 billion in additional financing under the EFF and RSF.
The IMF underscored the urgency of timely tariff adjustments and cost-reducing reforms in the energy sector to avoid renewed circular debt accumulation. Priorities include improving efficiency, increasing private sector participation in distribution, enhancing electricity market competition, achieving cost recovery in the gas sector, and reducing unaccounted-for gas losses.
The Article IV consultation also addressed longer-term structural reforms aimed at shifting Pakistan’s economy toward higher-value activities. The IMF highlighted the need for competition, privatization, regulatory and trade reforms, improved governance and transparency of state-owned enterprises, stronger anti-corruption institutions, and deeper financial markets.
Climate-related reforms under the RSF are progressing, with efforts to integrate climate considerations into public investment planning, strengthen disaster-risk financing and coordination, improve irrigation water pricing and collection, better target electricity subsidies, introduce energy-efficiency standards, and advance transport decarbonization.
Experts note that Pakistan is among the most vulnerable major Asia-Pacific economies to a prolonged Middle East conflict due to its dependence on Gulf energy imports, remittances, and financial support from the region.
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