Islamabad (GNP): Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement that could release around $1.2 billion in fresh financing. The deal covers the fourth review of the country’s $7 billion Extended Fund Facility (EFF) and the third review of its $1.4 billion Resilience and Sustainability Facility (RSF).
The IMF announced the agreement on Thursday, but it still needs approval from the fund’s Executive Board. Once cleared, Pakistan would receive about $1 billion under the EFF and $210 million under the RSF.
Those payments would lift the total released under the two arrangements to roughly $5.7 billion.
The agreement followed talks between Pakistani authorities and an IMF team led by Iva Petrova. The mission was in Pakistan from 23 September to 7 October for the fund’s 2026 Article IV consultation and the two programme reviews.
The IMF said the EFF programme remained broadly on track despite a difficult external environment. It added that Pakistan had kept up reforms under the RSF to build resilience against climate-related risks.
The fund pointed to improving economic numbers. Real gross domestic product (GDP) growth reached 4 per cent in the first three quarters of fiscal year 2026 (FY26), with full-year growth estimated at 3.6 per cent. Higher energy prices and supply disruptions, it said, had weakened momentum to some extent.
Inflation has also eased. Headline inflation moderated to about 10.3 per cent in September after peaking in May, while core inflation stayed contained.
The external position looks steadier too. The current account was broadly balanced in FY26, helped by strong remittances, and gross foreign exchange reserves rose to around $21.5 billion by the end of September.
The IMF said sovereign rating upgrades and renewed access to international markets signal stronger policy credibility. It warned, however, that risks remain elevated because of geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.
Against that backdrop, the fund stressed that carrying out the FY27 budget will be critical. It highlighted the government’s target of an underlying primary surplus equal to 2 per cent of GDP as key to putting public debt on a sustainable downward path.
To support that goal, the IMF called for further reforms in revenue administration, including risk-based audits, digital invoicing and wider use of third-party data. It also asked for a medium-term tax reform strategy that makes the system simpler and fairer while protecting revenues.
On public finances, the fund noted progress in budget management, public investment, procurement and government cash management. It urged the authorities to cut debt rollover risks and servicing costs while developing the domestic government securities market and widening the investor base.
Social spending is also part of the picture. Combined spending on health and education rose from 2.2 per cent of GDP in FY24 to 2.5 per cent in FY26, and the government has committed to lifting it to 2.8 per cent in FY27. The IMF asked for close monitoring of that commitment.
The fund also pointed to planned increases in targeted cash-transfer benefits, along with better coverage and payment systems, to protect vulnerable households.
Fuel support was one area of caution. The IMF called for the existing fuel support scheme to be phased out promptly, citing its high cost and broad targeting. Any future relief against higher-than-expected oil prices, it said, should be limited, temporary and targeted through established social assistance programmes within the FY27 budget.
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On monetary policy, the IMF urged the State Bank of Pakistan to keep an “appropriately tight” stance so that inflation returns sustainably to its target range. It said exchange-rate flexibility should continue to absorb shocks, while building reserves, easing foreign exchange rules gradually and deepening financial markets would strengthen resilience.
Energy reforms remain the final pillar of the programme. The fund called for timely tariff adjustments and cost-cutting measures to stop circular debt building up again.
It listed priorities including better sector efficiency, more private participation in electricity distribution, stronger competition in electricity markets, cost recovery in the gas sector and lower unaccounted-for gas losses.
The IMF said, “The authorities remain committed to preserving macroeconomic stability.”
