Staff-Level Agreement
WASHINGTON: The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan for a new $1.3 billion financial arrangement while also completing the first review of the country’s ongoing 37-month bailout program, the IMF announced on Tuesday. This agreement marks another step in Pakistan’s efforts to stabilize its economy and secure critical financial support.
According to the IMF, Pakistan has made notable progress in restoring macroeconomic stability and rebuilding investor confidence over the past 18 months, despite facing challenges in the global economic landscape.
The new 28-month program will support Pakistan’s initiatives to mitigate and adapt to climate change, highlighting the increasing focus on sustainability and environmental resilience.
Both the new financing arrangement and the loan review require final approval from the IMF’s executive board, which is generally considered a formality. Once approved, Pakistan will gain access to approximately $1 billion under the Extended Fund Facility (EFF), bringing the total disbursements under the current program to around $2 billion.
Pakistan’s finance ministry, in its latest economic outlook, projected that inflation would remain steady in March, fluctuating between 1% and 1.5%. This follows a significant slowdown in inflation, which had dropped to its lowest level in almost a decade the previous month.
In February, inflation stood at 1.5%, a notable decline from the staggering 40% recorded in May 2023. The country’s finance minister, Muhammad Aurangzeb, expressed optimism regarding the government’s economic policies, stating that they remain committed to structural reforms in taxation, energy, and state-owned enterprises (SOEs) to ensure long-term productivity and export-driven growth.
The IMF acknowledged that while economic growth remains moderate, financial conditions have improved. Inflation has fallen to its lowest level since 2015, sovereign bond spreads have narrowed significantly, and external balances have strengthened. The $7 billion IMF bailout played a crucial role in stabilizing Pakistan’s $350 billion economy and preventing a default.
However, the IMF also warned that Pakistan still faces substantial risks, including geopolitical uncertainties, commodity price shocks, tightening global financial conditions, and rising protectionism. These factors could threaten the macroeconomic stability the country has worked hard to achieve.
The Pakistani government remains committed to gradual fiscal consolidation to sustainably reduce public debt while maintaining tight monetary policies and cost-cutting measures. As part of its broader reform agenda, the authorities have also agreed in principle to a second review of the existing 37-month program.
Additionally, climate-related risks continue to pose a major challenge for Pakistan. IMF mission chief Nathan Porter emphasized the need for Pakistan to strengthen its economic resilience by maintaining progress in public finance management, ensuring price stability, rebuilding external reserves, and eliminating market distortions to support long-term, inclusive private sector-led growth.
Under the Resilience and Sustainability Facility (RSF), Pakistan has committed to key policy measures, including enhancing public investment in disaster resilience, improving water resource management through better pricing mechanisms, strengthening intergovernmental coordination on disaster financing, increasing transparency in financial and corporate climate-related risks, and promoting green mobility to mitigate pollution and health-related concerns.
With the IMF’s continued support, Pakistan aims to reinforce its economic foundation, address climate risks, and pursue sustainable growth strategies. The country now awaits the IMF board’s formal approval, which will determine the next phase of financial disbursements and policy implementation.
