By Staff Reporter
ISLAMABAD: Pakistan and the International Monetary Fund made significant progress toward a staff-level agreement on the review of a $7 billion bailout program, as the lender weighs the impact of recent floods on the cash-strapped South Asian nation’s economy.
An IMF mission led by Iva Petrova held talks with Pakistani authorities in Karachi and Islamabad from Sept. 24 to Oct. 8 to assess implementation of the Extended Fund Facility and the $1.1 billion Resilience and Sustainability Facility. The review covered performance through the end of June, which the IMF described as mixed.
“The IMF mission and the Pakistani authorities made significant progress toward reaching a staff-level agreement on the second review under the 37-month extended arrangement under the EFF and on the first review of 28-month arrangement under the RSF,” Petrova said in a statement released early Thursday. “Programme implementation remains strong, and broadly aligned with the authorities’ commitments.”
The discussions advanced in key areas, including sustaining fiscal consolidation to bolster public finances while supporting flood recovery; keeping inflation within the State Bank of Pakistan’s target range through tight, data-dependent monetary policy; restoring energy sector viability via regular tariff adjustments and cost-reducing reforms; and pushing structural changes to shrink the state’s role, improve governance and transparency, foster competition, and liberalize commodity markets, according to Petrova. “Productive discussions were also held on the authorities’ reform agenda to strengthen climate resilience, including the completion of reform measures under the RSF,” she added.
The IMF team and Pakistani officials will continue policy talks “with a view to settling any outstanding issues,” Petrova said. “The IMF team wants to express its sympathy to those affected by the recent floods, and is grateful to the Pakistani authorities, private sector, and development partners for many fruitful discussions and their hospitality throughout this mission.”
The progress comes after Prime Minister Shehbaz Sharif last month urged the IMF to factor in flood damage during the review. Pakistan secured the three-year, $7 billion aid package in July last year to stabilise its economy and pave the way for stronger, more inclusive growth. In May, the IMF’s board approved an additional $1 billion loan to build resilience against climate shocks and natural disasters, though disbursements depend on successful EFF reviews.
Local media reports suggest another round of talks could occur on the sidelines of the World Bank-IMF annual meetings in Washington in the coming days to address remaining issues. Finance Minister Muhammad Aurangzeb is set to travel to the US later this week, accompanied by the finance secretary, State Bank of Pakistan governor, and Federal Board of Revenue chairman.
Officials indicated that Islamabad must submit verified estimates of flood-related losses and confirm that provinces will cover these costs from their own resources without undermining cash surplus pledges to the federal government. For the current fiscal year, Punjab must deliver a Rs740 billion surplus, Sindh Rs370 billion, Khyber Pakhtunkhwa Rs220 billion, and Balochistan Rs185 billion.
The IMF mission skipped a formal wrap-up meeting with the finance minister before departing, though both sides met with Sharif, reflecting his recent outreach to the IMF managing director on flexibility amid flood impacts.
Pakistani officials described the negotiations as smooth so far, with no pressing need for new tax measures to offset shortfalls. However, the tax target could be adjusted based on first-quarter GDP data expected in late December. At that point, fresh measures or rate changes could take effect from Jan. 1, 2026, to address any first-half lapses, given the biannual review cycle.
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