Pakistan and the International Monetary Fund (IMF) have finalized a staff-level agreement that would allow disbursement of $1.2 billion after approval by the IMF Board.
Under this deal, $1 billion would come via the Extended Fund Facility (EFF), while $200 million would be allocated through the Resilience and Sustainability Facility (RSF). Once approved, Pakistan’s total draws from both programs would amount to approximately $3.3 billion.
Negotiation Background and Timing
Negotiations between IMF and Pakistani officials centered on the second review of the EFF and the first review of the RSF climate lending mechanism. The mission, led by Iva Petrova, had earlier left without a signed agreement, though both sides reported “significant progress.”
Finance Minister Muhammad Aurangzeb, currently in Washington, had expressed optimism that the agreement would be finalized this week. The staff-level agreement remains contingent on the IMF Executive Board’s approval.
Economic Performance, Flood Impact, and Outlook
According to the IMF, Pakistan’s economic framework under the EFF is reinforcing macro stability and rebuilding market confidence. In FY25, the country posted a current account surplus — the first in 14 years — and the fiscal primary balance exceeded program targets. Inflation has stayed within bounds, external buffers are growing, and sovereign spreads are narrowing.
However, recent floods have weakened the outlook, especially in the agriculture sector. As a result, GDP growth for FY26 is projected at 3.25–3.5 percent. The IMF emphasized that these natural disasters underscore Pakistan’s vulnerability and the urgency to build climate resilience.
Policy Commitments and Structural Reforms
Officials reaffirmed their dedication to sound macroeconomic policies and continuing structural reforms. Key commitments include:
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A FY26 budget primary surplus target of 1.6 percent of GDP, backed by enhanced revenue mobilization
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Strengthening Benazir Income Support Programme (BISP) in terms of coverage and administrative capacity
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Scaling up social spending in health and education to promote inclusivity
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Deepening collaboration between federal and provincial governments on revenue mobilization
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Modernizing tax policy via a newly formed tax policy office to simplify tax structure and reduce ad hoc reforms
Monetary Policy and Sovereign Risk Management
The State Bank of Pakistan is committed to a prudent monetary stance, calibrated by incoming data and flood impacts. The central bank aims to maintain inflation within 5–7 percent, with flexibility to respond to price pressures. Efforts are underway to deepen foreign exchange markets to support transaction flows and cushion external shocks.
Regarding circular debt, the government pledges to avoid accumulation via timely tariff adjustments, maintaining cost recovery, and ensuring a progressive tariff design. Key priorities also include reforming power distribution and generation companies, expanding private sector participation, and promoting competitiveness in commodity markets.
Climate Resilience and Disaster Preparedness
Acknowledging recent floods and past climate shocks, Pakistan is aligning policies with RSF goals to strengthen resilience. Plans include:
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Expanding green mobility and transport decarbonization
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Enhancing climate information systems and financial risk tools
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Building resilient water infrastructure
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Establishing coordinated disaster risk financing frameworks
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Aligning energy reforms with national mitigation commitments
These measures aim to make Pakistan better prepared for natural hazards while supporting sustainable growth.
