BeNewz
Related Articles
Agreement unlocks $1.2 billion in funding as IMF praises strong reform momentum amid flood challenges
Aftab Maken
ISLAMABAD: The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the second review of the 37-month Extended Fund Facility (EFF) and the first review of the 28-month Resilience and Sustainability Facility (RSF), paving the way for a disbursement of about $1.2 billion once approved by the IMF Executive Board. The agreement, announced on October 14, 2025, reflects what the IMF described as “strong implementation” of Pakistan’s economic reform agenda under both programs despite severe flood-related disruptions.
The IMF mission, led by Iva Petrova, held discussions with Pakistani authorities in Karachi, Islamabad, and Washington between September 24 and October 8. In a statement, Petrova said the agreement marks continued progress in “entrenching macroeconomic stability, rebuilding market confidence, and advancing structural and climate resilience reforms.”
Under the deal, Pakistan will gain access to about US$1.0 billion (SDR 760 million) through the EFF and about US$200 million (SDR 154 million) via the RSF, bringing total disbursements under the twin programs to roughly US$3.3 billion. The EFF aims to strengthen public finances, stabilize prices, and restore energy sector viability, while the RSF supports climate adaptation and sustainability initiatives.
Petrova noted that Pakistan’s macroeconomic performance has improved significantly in recent months. “The recovery remains on track, with the FY25 current account recording a surplus—the first in 14 years,” she said. “Fiscal performance has exceeded program targets, inflation is contained, external buffers are strengthening, and financial conditions have improved as sovereign spreads have narrowed significantly.”
However, the IMF also cautioned that the recent floods—affecting nearly seven million people, killing over 1,000, and destroying homes, public infrastructure, and agricultural land—have clouded the near-term outlook. The disaster is expected to lower FY26 GDP growth to between 3.25% and 3.5%, mainly due to losses in the agricultural sector. The Fund emphasized that these events underscore Pakistan’s acute vulnerability to climate-related shocks and the urgent need to accelerate resilience-building measures.
The IMF statement reaffirmed the Pakistani authorities’ commitment to key policy priorities under both facilities. These include maintaining fiscal discipline, advancing social protection programs, tightening monetary policy to control inflation, reforming the energy sector, and accelerating structural and climate reforms.
Finance authorities are targeting a FY26 primary fiscal surplus of 1.6% of GDP. To achieve this, they plan to sustain tax mobilization efforts, strengthen compliance, and improve coordination between federal and provincial governments. The government also pledged to reallocate spending to fund flood relief operations while protecting vulnerable groups through the Benazir Income Support Program (BISP) and expanding investments in health and education.
Fiscal reforms remain a central element of the IMF-supported agenda. Efforts are underway to simplify the tax code, reduce reliance on ad hoc measures, and enhance the newly established tax policy office’s capacity to lead medium-term reforms. The IMF has also encouraged deeper federal-provincial collaboration to broaden the tax base and improve expenditure efficiency.
On monetary policy, the State Bank of Pakistan (SBP) is expected to maintain a data-driven approach to keep inflation within its 5–7% target range. The Fund acknowledged that the floods could cause temporary price spikes but welcomed the SBP’s commitment to act promptly if inflationary pressures persist. It also urged continued reforms to strengthen the foreign exchange market and build external resilience.
Energy sector reform is another critical pillar of the program. The IMF emphasized that preventing the reemergence of circular debt remains essential for fiscal sustainability. The government has agreed to ensure cost-reflective tariffs, enhance governance and efficiency in power distribution companies, and pursue privatization of inefficient generation firms. Plans are also advancing to complete the transition to a competitive electricity market and upgrade transmission systems.
The statement further highlighted progress in broader structural reforms aimed at improving productivity, governance, and private-sector competitiveness. The authorities are moving ahead with state-owned enterprise reforms, reducing government intervention in commodity markets, and fostering a diversified agricultural sector that can meet domestic food security needs while competing globally. Implementation of the new national tariff policy is also expected to boost trade performance.
Climate resilience remains a cornerstone of the RSF-supported agenda. The IMF said Pakistan’s recent floods and the catastrophic events of 2022 demonstrate the necessity of building durable climate defenses. Current reforms include promoting green mobility, advancing transport decarbonization, and strengthening climate risk management frameworks. Future priorities involve improving water system resilience, establishing disaster risk financing mechanisms, and aligning energy reforms with Pakistan’s emission reduction commitments.
“The IMF team expresses its sympathy to those affected by the recent floods and is grateful to the Pakistani authorities, private sector, and development partners for their cooperation and hospitality throughout this mission,” Petrova concluded.
Once approved by the IMF Executive Board, the new disbursements will further bolster Pakistan’s external reserves and support the government’s continued efforts to stabilize the economy, sustain recovery, and enhance resilience to future shocks. The agreement represents another key milestone in Pakistan’s engagement with the IMF amid persistent economic and climate-related challenges.
