By Staff Reporter
KARACHI: The International Monetary Fund reached a staff-level agreement with Pakistan on two loan reviews, clearing the way for about $1.2 billion in disbursements once the lender’s board approves.
Pakistan would receive about $1 billion (SDR 760 million) under its $7 billion Extended Fund Facility and about $210 million (SDR 154 million) under the $1.4 billion Resilience and Sustainability Facility, the Washington-based fund said in a statement. That would bring total disbursements under the two arrangements to about $5.7 billion. Pakistan could draw the money in four to five weeks.
The agreement covers the fourth review of the 37-month EFF and the third review of the 28-month RSF. An IMF team led by Iva Petrova held talks in Karachi and Islamabad from Sept. 23 to Oct. 7, and the two sides also concluded the 2026 Article IV consultation. A staff-level deal in March on the previous reviews had lifted disbursements under the program to $4.5 billion.
Program implementation under the EFF “has remained broadly on track,” the IMF said. Petrova said that “the authorities have successfully navigated the impact of the Middle East conflict, and strong policies have helped preserve macroeconomic stability.” Pakistan, a key mediator between the US and Iran, has endured months of fighting and disrupted global energy shipments that sent prices soaring.
Real GDP growth reached 4% in the first three quarters of fiscal 2026, though “higher energy prices and supply disruptions weakened somewhat the momentum,” Petrova said. Growth for the full year is estimated at 3.6%.
Headline inflation eased to about 10.3% in September after peaking in May, while core inflation “remained contained.” That is still above the State Bank of Pakistan’s medium-term target range of 5% to 7%, and the central bank left its benchmark rate at 11.5% at its July meeting.
The current account was broadly balanced in fiscal 2026 on strong remittances, and gross reserves rose to about $21.5 billion by the end of September. S&P Global Ratings upgraded Pakistan’s sovereign rating to B this year. Petrova said rating upgrades and renewed market access “point to stronger policy credibility.” Still, she said, “risks remain high,” citing geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.
The fund singled out the fuel support scheme, which “should be phased out promptly, given its high cost and broad targeting.” Should oil prices surprise on the upside, any future support should be “limited, timebound” and targeted through existing social assistance programs, and it must fit within the fiscal 2027 budget, Petrova said.
The IMF also told the State Bank to maintain an “appropriately tight” policy stance until inflation returns durably to its target range. “Exchange rate flexibility should continue to serve as an important shock absorber,” Petrova said, alongside further reserve accumulation and gradual liberalization of the foreign-exchange regime.
On the budget, the fund said “steadfast implementation” of the fiscal 2027 plan, anchored by an underlying primary surplus of 2% of GDP, is “critical to placing public debt on a durable downward path.” Better risk-based audits, digital invoicing and the use of third-party data will help safeguard revenue targets, it said. A medium-term tax reform strategy should make the system “fairer, simpler, and more growth friendly” while protecting revenue.
Spending on health and education is rising after authorities “arrested the long-term decline,” from 2.2% of GDP in fiscal 2024 to 2.5% in fiscal 2026, the IMF said. Authorities have committed to 2.8% in fiscal 2027, along with larger targeted cash transfers and better payment systems.
In the power sector, the fund said timely tariff adjustments and cost-cutting reforms “remain essential to prevent renewed circular debt accumulation,” the buildup of unpaid bills along the energy supply chain, while protecting vulnerable consumers. Its priorities include more private participation in distribution, deeper electricity market competition, gas-sector cost recovery and lower unaccounted-for gas losses.
The authorities also remain committed to “reducing debt rollover risks and servicing costs,” the IMF said, while developing the domestic government securities market and broadening the investor base.
The Article IV consultation focused on helping the economy shift toward higher value-added activities. That means stronger competition, lower regulatory and trade barriers, privatization, better governance at state-owned enterprises and stronger anti-corruption institutions. Together with a simpler tax system, more spending on human and capital development, a cheaper energy sector and deeper financial markets, those changes are “critical to raise productivity” and to boost jobs, private investment and exports, Petrova said.
Under the RSF, Pakistan is “continuing efforts to strengthen resilience to climate change,” the IMF said, citing progress in climate-informed public investment planning and disaster-risk financing. Reforms are also advancing on irrigation water pricing and collection, electricity subsidies, energy-efficiency standards and transport decarbonization.
The staff-level agreement remains subject to approval by the IMF’s Executive Board.
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