By Staff Reporter
ISLAMABAD: Finance Minister Muhammad Aurangzeb discussed the impact of Middle East tensions on energy prices and inflation with the International Monetary Fund’s second-ranking official, including how to deliver targeted relief to vulnerable households “within fiscal constraints,” the Finance Division said.
Aurangzeb met Dan Katz, the IMF’s first deputy managing director, on the sidelines of the World Bank Group-IMF annual meetings in Bangkok, which run from Oct. 12 to Oct. 18. “Both sides reaffirmed their commitment to continued cooperation and safeguarding macroeconomic stability against external challenges,” the Finance Division said.
The meeting follows a staff-level agreement reached last week on the fourth review of Pakistan’s 37-month, $7 billion Extended Fund Facility and the third review of its Resilience and Sustainability Facility. Once the IMF’s executive board signs off, Pakistan would gain access to about $1 billion under the EFF and about $210 million under the RSF. That would bring total disbursements under the two programs to about $5.7 billion. Local reports said the funds could be drawn within four to five weeks.
The deal followed a mission led by Iva Petrova that held talks in Pakistan from Sept. 23 to Oct. 7. A previous round in March ended without agreement, and negotiations continued.
The US-Iran war has disrupted Gulf energy supplies and shipping through the Strait of Hormuz, pushing up fuel costs for Pakistan, which imports much of its oil from the Middle East. Attacks by Houthi rebels on Saudi civilian infrastructure, including aviation facilities, since last week have also lifted crude prices globally. Brent topped $107 a barrel in mid-September after Saudi Arabia shut its East-West pipeline, a route that lets the kingdom bypass Hormuz. Before the war, Brent traded at about $72.
Pakistan has raised domestic petrol prices and introduced a fuel subsidy for motorcyclists, rickshaw drivers and owners of small cars to cushion lower-income households.
Aurangzeb pointed to improved investor confidence, sovereign credit rating upgrades and Pakistan’s renewed access to international capital markets, according to the statement. He reaffirmed the government’s commitment to fiscal discipline, tax reform and privatization. Both sides welcomed the staff-level agreement and acknowledged improvements in fiscal performance, foreign-exchange reserves, inflation and external stability.
In its own statement, the IMF said Pakistan had “successfully navigated the impact of the Middle East conflict,” though higher energy prices and supply disruptions slowed growth. The Fund estimated expansion at 3.6% for the fiscal year 2025-26, after growth of 4% in the first three quarters. Headline inflation eased to about 10.3% in September after peaking in May, while gross reserves rose to about $21.5 billion by the end of that month.
The Fund was less accommodating on fuel support. “The fuel support scheme should be phased out promptly, given its high cost and broad targeting,” it said. Any future assistance should be “limited, timebound, targeted using established social assistance programs, and accommodated within the FY27 budget envelope,” the IMF said.
The Fund also called for the State Bank of Pakistan to keep policy appropriately tight until inflation returns durably to its target range, and for timely electricity tariff adjustments to prevent a renewed buildup of circular debt. It warned that risks remain high, citing geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.
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