By Staff Reporter
KARACHI: The International Monetary Fund approved a $1.2 billion disbursement to Pakistan under its bailout program, providing a financial boost as the South Asian nation grapples with the aftermath of devastating floods and pushes ahead with economic reforms.
The IMF’s executive board, meeting in Washington on Monday, signed off on the funds from the 37-month Extended Fund Facility and the climate-focused Resilience and Sustainability Facility. The decision brings total disbursements under the dual-track program to about $3.3 billion. “Pakistan’s strong programme implementation, despite the recent devastating floods, has maintained stability and improved financing and external conditions,” the board said in a statement.
The approval follows the fund’s recognition of Pakistan’s progress in stabilising its economy amid a tough global backdrop, including commodity-price volatility and tight financial conditions. Policy priorities remain focused on maintaining macroeconomic stability and advancing reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, bolster the social safety net and human capital, reform state-owned enterprises, and improve public service provision and energy sector viability.
Pakistan’s fiscal performance has been robust, with a primary surplus of 1.3% of gross domestic product in fiscal 2025, aligning with program targets. Gross reserves climbed to $14.5 billion at the end of the fiscal year, up from $9.4 billion a year earlier, and are expected to continue rebuilding in fiscal 2026 and beyond. The board noted that inflation has risen due to flood impacts on food prices, but described the uptick as temporary.
“In the face of an uncertain global environment, Pakistan needs to maintain prudent policies to further entrench macroeconomic stability, while accelerating reforms necessary to achieve stronger, private-sector-led, and sustainable medium-term growth,” IMF Deputy Managing Director and Acting Chair Nigel Clarke said in a statement. Clarke emphasized the need for reforms to raise revenues through tax policy simplification and base broadening, calling it key to achieving fiscal sustainability and creating space for investments in climate resilience, social protection, human capital development, and public infrastructure. “Reforms in the energy sector are critical to safeguarding its viability and improving Pakistan’s competitiveness,” he added, noting that timely power tariff adjustments had “helped reduce the stock and flow of circular debt.” He stressed that future efforts should target sustainably reducing electricity production and distribution costs and addressing inefficiencies in the power and gas sector.
The Resilience and Sustainability Facility tranche aims to support Pakistan’s climate adaptation and disaster resilience efforts. It backs initiatives to “strengthen natural disaster response and financing coordination, improve the use of scarce water resources, raise climate considerations in project selection and budgeting, and improve the information on climate-related risks in financing decisions,” Clarke said.
“The recent floods highlight the urgency of moving swiftly on climate-related reforms to build resilience to the frequent natural disasters that Pakistan faces,” the board stated. “The authorities are making progress on such reforms, supported by the RSF.” The IMF welcomed Pakistan’s publication of the Governance and Corruption Diagnostic Assessment, calling it “a welcome step in accelerating governance reforms.” Clarke urged additional focus on state-owned enterprise governance reforms and privatisation, enhancing the business environment, and improving economic data and statistics. “Efforts to advance structural reforms should continue to unlock growth potential and attract high-impact private investment,” he said, underscoring that sustained reform in state-owned enterprises, energy policy, and public service delivery is essential for lasting economic stability.
The funds are expected to offer breathing space for debt servicing, enhance import cover, and support investments in infrastructure upgrades, water management, and other climate-adaptation measures under the RSF roadmap.
Officials in Islamabad hailed the approval as a vote of confidence in Pakistan’s reform efforts and macroeconomic management, while emphasising that the real test will be in turning these commitments into tangible economic recovery.
Analysts said continued discipline in fiscal and energy policy, governance reforms, and climate adaptation will be crucial to ensure the relief is sustainable and that Pakistan can build resilience against future shocks. The endorsement follows a staff-level agreement reached in October, with board approval seen as a procedural step, though largely a formality. “It obviously will help strengthen [the country’s] external sector, the balance of payments,” Samiullah Tariq, group head of research at Pakistan Kuwait Investment Company Limited, said. The IMF board’s approval would be an indication that Pakistan’s economy is on the right path, Tariq added.
Until recently, Pakistan faced a macroeconomic crisis that depleted resources and sparked a balance of payments crunch. Over the past two years, however, the country has posted current account surpluses and curbed inflation that hit record highs in mid-2023.
Economists view the IMF packages as vital for the cash-strapped nation, which has leaned on financing from bilateral partners like Saudi Arabia, China, and the United Arab Emirates, as well as multilateral lenders. Last week, Saudi Arabia extended the term of its $3 billion deposit for another year through the Saudi Fund for Development, aiding Pakistan’s foreign exchange reserves, which stood at $14.5 billion as of Nov. 28, per State Bank of Pakistan data. “In our view this [IMF tranche] will be approved,” said Shankar Talreja, head of research at Karachi-based brokerage Topline Securities Limited. “This will help strengthen reserves and will eventually help a rating upgrade going forward.” The nod would also signal to international and local investors the continuation of the reform agenda by Pakistan’s government, Talreja said.
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