BeNewz
Related Articles
–Pakistan secures staff-level IMF deal, paving way for $1.2bn disbursement under EFF and RSF programs, reinforcing economic stabilization efforts
BeNewz Report
ISLAMABAD: Pakistan reached a staff-level agreement with the International Monetary Fund on key program reviews, unlocking about $1.2 billion in fresh financing, the lender said on Friday. The agreement covers the third review under the Extended Fund Facility and the second review under the Resilience and Sustainability Facility.
The deal, once approved by the IMF Executive Board, will release around $1.0 billion under the EFF and $210 million under the RSF. Total disbursements under both arrangements will rise to roughly $4.5 billion, according to IMF estimates released in Washington.
The agreement follows talks held in Karachi and Islamabad between February 25 and March 2, led by IMF mission chief Iva Petrova. Discussions continued virtually afterward before both sides finalized the staff-level understanding.
The IMF said Pakistan’s program implementation remained broadly aligned with macroeconomic stabilization goals. Authorities focused on strengthening public finances, containing inflation, and advancing structural reforms across key sectors.
Pakistan’s economy has shown gradual recovery momentum since fiscal year 2025. Growth picked up in early fiscal year 2026, supported by improved external balances and easing inflation pressures. According to the State Bank of Pakistan, inflation has moderated from peaks above 25% in 2023 to single digits recently, reflecting tighter monetary policy and improved supply conditions.
External buffers have also strengthened, aided by improved remittance inflows and controlled imports. The current account deficit remained contained, aligning with IMF program targets, while foreign exchange reserves showed gradual improvement.
However, risks remain elevated due to global uncertainties. The IMF warned that tensions in the Middle East could drive energy price volatility, putting upward pressure on inflation and external balances. Higher global interest rates may also tighten financial conditions for emerging markets, including Pakistan.
Pakistan has committed to maintaining a prudent fiscal stance under the program. Authorities aim to achieve a primary surplus of 1.6% of GDP in fiscal year 2026, rising to 2% in fiscal year 2027. These targets are critical to reducing the country’s high public debt burden, which remains above 70% of GDP, according to Ministry of Finance data.
Revenue mobilization remains a central pillar of reforms. The Federal Board of Revenue is implementing a transformation plan focused on expanding the tax base and improving compliance. Measures include digital invoicing systems, enhanced audit mechanisms, and production monitoring to reduce leakages.
The government also established a Tax Policy Office to design a medium-term reform strategy. The objective is to ensure tax policy stability while maintaining revenue neutrality and improving documentation of the economy.
Pakistan’s tax-to-GDP ratio has historically lagged regional peers. According to World Bank data, it stood near 10–11% in recent years, limiting fiscal space for development spending and social protection programs.
Social safety nets remain a priority under the IMF-supported program. The government is expanding the Benazir Income Support Programme to cushion vulnerable households against rising living costs. Measures include inflation-linked cash transfers, broader beneficiary coverage, and improved payment systems.
Public spending on health and education is also being scaled up gradually. Authorities aim to support human capital development while maintaining fiscal discipline under IMF targets.
Monetary policy will remain tight and data-dependent, the IMF said. The State Bank stands ready to raise interest rates if inflationary pressures re-emerge, particularly due to global commodity price shocks. Exchange rate flexibility will continue to serve as a key buffer against external shocks.
Pakistan’s energy sector reforms remain critical to long-term stability. The IMF stressed the need to avoid a buildup of circular debt, which has historically strained public finances and energy supply chains. According to official data, circular debt in the power sector has exceeded Rs2.5 trillion in recent years.
Authorities have committed to timely tariff adjustments to ensure cost recovery. They also plan structural reforms, including privatization of inefficient generation companies and transition toward a competitive electricity market.
The program also emphasizes climate resilience under the RSF arrangement. Pakistan remains one of the most climate-vulnerable countries globally, as highlighted by the devastating floods of 2022 that caused over $30 billion in economic losses, according to government and World Bank estimates.
Reforms include strengthening climate risk management systems, promoting renewable energy, and improving water resource management. The government is also working on disaster risk financing frameworks to mitigate future shocks.
Pakistan’s broader structural reform agenda includes reducing the state’s footprint in the economy and promoting private sector growth. Authorities are advancing state-owned enterprise reforms and privatization plans to improve efficiency and service delivery.
Efforts to reduce regulatory burdens and improve governance are also underway. Anti-corruption measures and institutional strengthening remain key components of the reform program.
The IMF noted that sustained policy implementation will be essential to maintaining macroeconomic stability. Continued reform momentum could help Pakistan achieve durable growth while reducing vulnerabilities.
The IMF agreement provides critical financial support at a time when Pakistan faces external financing pressures. Analysts say timely Board approval will boost investor confidence and support the country’s access to international capital markets.
Looking ahead, Pakistan’s economic outlook will depend on consistent policy execution and external conditions. Energy prices, global interest rates, and geopolitical developments remain key risk factors.
The successful completion of IMF reviews signals continued engagement between Pakistan and the International Monetary Fund, reinforcing policy credibility as the country navigates its economic recovery path.
