By Staff Reporter
ISLAMABAD: The International Monetary Fund reached a staff-level agreement with Pakistani authorities for the release of about $1.2 billion, clearing the way for the third review under the country’s Extended Fund Facility and the second under the Resilience and Sustainability Facility, the fund said on Saturday.
Subject to approval by the IMF board, the payout will consist of roughly $1 billion (SDR 760 million) under the EFF and $210 million (SDR 154 million) under the RSF. That will bring total disbursements under the two arrangements to about $4.5 billion, IMF mission chief Iva Petrova said in a statement.
The agreement follows talks held in Karachi and Islamabad from Feb. 25 to March 2, with virtual discussions continuing afterward. In a tacit endorsement of Islamabad’s approach to fuel pricing, the IMF noted the policy’s role even as the Middle East conflict adds volatility to energy markets.
Program implementation under the EFF has remained “broadly on track” with the government’s goals of strengthening public finances, keeping inflation durably within the State Bank of Pakistan’s target range, improving the viability of the energy sector, advancing structural reforms, bolstering social protection, and rebuilding spending on health and education, the fund said.
The climate-focused agenda supported by the RSF is also progressing, with authorities committed to policies that build resilience and reduce exposure to climate-related risks, according to the statement. “Supported by the EFF, ongoing policies have continued to strengthen the economy and rebuild market confidence,” the IMF said. “Following the recovery in FY25, economic activity gained further momentum in the first part of the current fiscal year. Inflation and the current account balance remained contained, and external buffers continued to strengthen.”
The outlook, however, is clouded by the Middle East conflict. “Volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weighing on growth and the current account,” the fund warned.
Pakistani authorities remain focused on preserving recent gains in macro-financial stability while deepening reforms. Their policy priorities, as outlined by the IMF, centre on a prudent fiscal stance aimed at reducing the still-high public debt burden over the medium term. Officials are targeting a primary surplus of 1.6% of gross domestic product in the FY26 budget and an underlying primary balance of 2% of GDP in FY27. That effort will be supported by measures to broaden the tax base, tighten expenditure discipline, expand health, education and social protection spending, and improve burden-sharing between the federal and provincial governments.
On the structural side, revenue mobilisation is already showing results. The Federal Board of Revenue has begun implementing priority actions under its transformation plan and is developing key performance indicators to track progress. Those steps include stronger taxpayer audits, wider use of digital invoicing and production monitoring, and improved internal governance at the FBR. A newly established Tax Policy Office is drafting a medium-term tax reform strategy designed to deliver revenue neutrality and greater policy stability. Additional work is underway to enhance fiscal federalism and public financial management.
To shield the most vulnerable from volatile food and fuel prices, authorities are strengthening the Benazir Income Support Program with inflation-adjusted cash transfers, broader beneficiary coverage and more efficient payment systems. In parallel, they plan to scale up federal and provincial spending on health and education to support human capital development and inclusive growth.
Monetary policy remains anchored by the State Bank of Pakistan’s commitment to keep inflation within its target range. The central bank stands ready to raise interest rates if price pressures intensify or inflation expectations rise, including from global food and fuel pass-through. Exchange-rate flexibility will continue to act as the primary shock absorber, while the banking system must remain equipped to handle import financing and other external payments amid potential balance-of-payments pressures.
In the energy sector, the authorities are determined to achieve viability and prevent a recurrence of circular debt. That requires timely tariff adjustments to ensure full cost recovery, an explicit avoidance of regressive and costly subsidies, and structural reforms to improve efficiency. Those include better transmission and distribution, privatisation of inefficient generation companies, completion of the shift to a competitive electricity market, and a move toward renewables while rationalising capacity to match demand and maintain grid stability.
Broader structural reforms are advancing to strengthen governance, cut inefficiencies and market distortions, ease regulatory burdens, boost productivity and foster private-sector development. State-owned enterprise reform and privatisation remain central to shrinking the government’s footprint and improving service delivery. Officials are also reducing intervention in commodity markets and intensifying anti-corruption efforts to create a level playing field for business and investment.
On climate resilience, policies backed by the RSF—including recently implemented measures to promote green mobility, transport decarbonization, stronger climate information systems and better management of climate-related financial risks—are helping Pakistan meet its national commitments. Further steps are planned to enhance water-system resilience, prioritise climate-relevant spending, establish a coordinated disaster-risk financing framework and align energy reforms with mitigation objectives.
Suggested Headlines:
- IMF Staff Agree on $1.2 Billion Pakistan Payout, Endorse Fuel Policy Amid Middle East Risks
- Pakistan Secures IMF Funding After Reviews as Economy Strengthens but Middle East Clouds Outlook
- IMF Clears $1.2 Billion for Pakistan, Citing Progress on Debt, Energy and Climate Reforms
- Pakistan Gets Staff-Level Nod for $1.2 Billion IMF Disbursement With Focus on Fiscal Discipline
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