IMF Reaches Staff-Level Agreement with Pakistan for $1.21 Billion Financing

The agreement covers the fourth review of Pakistan's 37-month Extended Fund Facility (EFF) programme and the third review of its 28-month Resilience and Sustainability Facility (RSF) arrangement, the IMF said on Wednesday.

The deal still requires approval from the IMF Executive Board before it can release the funds. Once approved, Pakistan would receive around $1 billion under the EFF and another $210 million through the RSF, taking total disbursements under the two programmes to approximately $5.7 billion.

An IMF mission led by Iva Petrova held discussions with Pakistani authorities in Karachi and Islamabad between September 23 and October 7 as part of the country's programme reviews and annual economic consultation.

Pakistan's economy is estimated to have grown by 3.6 per cent in FY26, although higher energy costs and supply disruptions weakened the pace of expansion. Real GDP grew 4 per cent in the first three quarters of the financial year.

Inflation, which peaked in May, eased to around 10.3 per cent in September, while the current account remained broadly balanced, supported by strong remittance inflows. Gross foreign exchange reserves also rose to approximately $21.5 billion by the end of September.

The IMF said upgrades to Pakistan's sovereign credit ratings and renewed access to international financial markets indicated improving confidence in the country's economic policies. However, it cautioned that the recovery remained exposed to external risks.

Petrova said geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions continued to pose significant risks to the outlook.

The Fund called on Pakistan to maintain fiscal discipline and implement its FY27 budget, including an underlying primary surplus target equivalent to 2 per cent of GDP.

It also urged the government to strengthen tax administration through measures such as risk-based audits, digital invoicing and greater use of third-party information to improve revenue collection.

The IMF further called for reforms in public financial management, government procurement and cash management to help lower borrowing costs and reduce risks associated with debt refinancing.

On social spending, the Fund noted that Pakistan had increased expenditure on health and education from 2.2 per cent of GDP in FY24 to 2.5 per cent in FY26. The government plans to raise the share to 2.8 per cent of GDP in FY27.

The IMF welcomed improvements in targeted cash assistance programmes but called for the existing fuel subsidy scheme to be phased out quickly, citing its high fiscal cost and broad coverage.

The Fund also urged the State Bank of Pakistan to maintain a sufficiently tight monetary policy stance until inflation returns sustainably to its target range.

Energy-sector reforms remain another key priority. The IMF called for timely tariff adjustments, improvements in efficiency, greater competition in electricity distribution and measures to prevent the renewed accumulation of circular debt.

The Extended Fund Facility provides financial support to countries undertaking reforms to address structural economic weaknesses and balance-of-payments pressures, while the Resilience and Sustainability Facility offers longer-term financing for reforms aimed at addressing climate-related and other structural vulnerabilities.

Pakistan has repeatedly turned to IMF-supported programmes to stabilise its economy, strengthen foreign exchange reserves and address persistent fiscal and energy-sector imbalances.