Washington, October 8 (Daily Kiran) : The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan that may open the door for approximately $1.21 billion in additional financial assistance. This agreement comes amid ongoing geopolitical tensions that the IMF warns could significantly impact Pakistan’s economic recovery.
On Wednesday, the IMF announced that this deal is linked to the fourth review of Pakistan’s 37-month Extended Fund Facility (EFF) and the third review of the 28-month Resilience and Sustainability Facility (RSF). However, the agreement must still receive approval from the IMF’s Executive Board before funds can be disbursed. Once approved, Pakistan could receive around $1 billion under the EFF and approximately $210 million under the RSF, bringing the total funding from both programs to about $5.7 billion.
A team from the IMF, led by Eva Petrova, engaged in discussions with Pakistani officials in Karachi and Islamabad from September 23 to October 7. These talks were part of Pakistan’s annual economic review and the assessment of IMF programs.
Pakistan’s economy is projected to grow by 3.6% in the fiscal year 2025-26, although high energy prices and supply disruptions have hindered growth. The real GDP growth rate for the first three quarters of the fiscal year stood at 4%. After peaking in May, inflation has decreased, reaching about 10.3% in September. Strong remittances from abroad have helped keep the current account situation relatively balanced, with Pakistan’s total foreign exchange reserves rising to around $21.5 billion by the end of September.
The IMF noted improvements in Pakistan’s sovereign credit rating and its renewed access to international financial markets, indicating growing confidence in the country’s economic policies. However, the organization also cautioned that the pace of economic reforms remains vulnerable to external shocks.
Eva Petrova emphasized, “Despite these improvements, risks remain significant, particularly due to geopolitical tensions, fluctuations in energy prices, tightening global financial conditions, and trade disruptions.”
The IMF has urged Pakistan to maintain fiscal discipline and implement its budget for the fiscal year 2026-27, which includes a target for a primary surplus of 2% of GDP. The IMF also called for enhancements in tax collection systems, including risk-based audits and the use of third-party information to strengthen tax recovery.
Improvements in government financial management, procurement processes, and cash management are also priorities for the IMF. These measures aim to reduce the costs associated with borrowing and the risks of taking on new debt to repay existing loans.
Regarding social spending, the IMF noted that Pakistan has increased its expenditure on health and education from 2.2% of GDP in the fiscal year 2023-24 to 2.5% in 2025-26, with plans to raise it to 2.8% in 2026-27. The IMF welcomed the increase in direct cash assistance to those in need but advised phasing out the current fuel support scheme due to its high costs and broad scope. Additionally, the IMF urged the State Bank of Pakistan to maintain necessary monetary tightening until inflation consistently falls within target ranges.
Reforms in the energy sector remain a key focus for the IMF, including timely adjustments in electricity tariffs, enhancing operational efficiency, increasing competition in electricity distribution, and preventing a resurgence of circular debt.
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