By Staff Reporter
KARACHI: Pakistan reached a staff-level agreement with the International Monetary Fund (IMF) on its bailout programs, paving the way for the release of $1.2 billion once approved by the lender’s board.
The deal, announced on Wednesday by the IMF, would provide $1 billion under the Extended Fund Facility and $200 million under the Resilience and Sustainability Facility, bringing total disbursements under the two arrangements to about $3.3 billion.
An IMF mission led by Iva Petrova concluded talks with Pakistani authorities last week on the second review of the EFF, agreed in 2024 to stabilise the economy after a severe financial crisis, and the first review for the RSF climate loan.
The mission departed Pakistan without signing the agreement, though the IMF noted significant progress toward a deal. A day earlier, Finance Minister Muhammad Aurangzeb, who is in Washington, expressed hope that an agreement would be reached this week.
The IMF team held discussions from Sept. 24 to Oct. 8, 2025, during the mission to Karachi and Islamabad, and in Washington, D.C., for the second review under the 37-month EFF and the first review under the 28-month RSF.
“The IMF team has reached a staff-level agreement with the Pakistani authorities on the second review of the 37-month Extended Arrangement under the Extended Fund Facility (EFF) and the first review of the 28-month arrangement under the Resilience and Sustainability Facility (RSF),” Petrova, at the conclusion of the discussions, said in a statement. “The staff-level agreement is subject to approval by the IMF Executive Board. Upon approval, Pakistan will have access to about US$1.0 billion (SDR 760 million) under the EFF and about US$200 million (SDR 154 million) under the RSF, bringing total disbursements under the two arrangements to about US$3.3 billion.”
The statement said Pakistan’s economy recovery remains on track, with the FY25 current account recording a surplus—the first in 14 years, the fiscal primary balance surpassing the program target, inflation remaining contained, external buffers strengthening, and financial conditions improving as sovereign spreads have narrowed significantly.
Recent floods have clouded the outlook, however. The disasters have impacted nearly seven million people, caused more than 1,000 deaths and inflicted severe damage on housing, public infrastructure and agricultural land. That’s weighed heavily on the agriculture sector, prompting a downgrade in projected FY26 gross domestic product growth to about 3.25% to 3.5%. “The floods underscore Pakistan’s high vulnerability to natural disasters and substantial climate-related risks, and the continuing need to build climate resilience,” Petrova added.
Pakistani officials reaffirmed their commitment to the EFF and RSF programs, pledging to uphold prudent macroeconomic policies and push forward with structural reforms. Key priorities outlined in the statement include ongoing fiscal consolidation, with authorities vowing to hit the FY26 budget primary surplus target of 1.6% of GDP. That’s underpinned by revenue mobilisation through tax policy and compliance, with readiness to act if shortfalls emerge.
Meanwhile, flood damage assessments are underway, and relief is being channeled through budget reallocations at the federal and provincial levels. On social protection, a core element of the EFF, efforts are focused on bolstering the Benazir Income Support Program’s generosity, coverage and administrative capacity. Non-BISP spending on health and education is also set to rise at both federal and provincial tiers to foster inclusive growth and protect the vulnerable.
Fiscal structural reforms are advancing, with initiatives to boost revenue, share burdens between federal and provincial governments, and improve public financial management. Federal officials plan to deepen ties with provinces on revenue mobilization, while a new tax policy office will spearhead medium-term changes to simplify the tax code and curb ad hoc measures.
Monetary policy remains tight and data-driven, with the State Bank of Pakistan committed to keeping inflation within its 5% to 7% target range. The SBP is monitoring flood effects and the recovery, prepared to tweak its stance if price pressures build or expectations drift. While reserve accumulation is positive, more work is needed to deepen the foreign exchange market for better transactions, price discovery and shock absorption.
In the energy sector, the focus is on halting circular debt buildup via timely tariff hikes for cost recovery and a progressive structure. Reforms target better performance and governance of distribution companies through privatization, transmission upgrades, divestment of inefficient generators and a shift to competitive electricity markets.
Broader structural reforms aim to lift productivity, enhance governance and improve the business climate for private sector growth. More progress is required on state-owned enterprise overhauls to reduce the government’s economic role. Plans also include easing interventions in commodity markets to create a competitive agricultural sector that ensures food security, alongside trade boosts via the new national tariff policy.
Climate resilience is a pressing concern, amplified by the recent floods and the 2022 catastrophes. RSF-backed policies, in line with national goals, are advancing, including recent steps on green mobility and transport decarbonization. Future reforms will target stronger climate data systems, financial risk management, water resilience, disaster financing frameworks and energy alignment with mitigation pledges.
“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,” Petrova said.
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