The International Monetary Fund (IMF)’s Executive Board on Friday approved two financing arrangements for Pakistan—a $1 billion tranche under the ongoing $7 billion Extended Fund Facility (EFF) and $1.4 billion under a new Resilience and Sustainability Facility (RSF).
The approval came despite attempts to block it by India, which abstained from the vote but was unable to convince the rest of the Executive Board to side with it in its efforts to deny financing for Pakistan amidst ongoing tensions between the neighboring states.
In a statement, the IMF attributed the approval of the financing to authorities’ strong program implementation and resultant improving financing and external conditions, and continuing economic recovery. It said future policy priorities would include advancing reforms to strengthen competition, raise productivity and competitiveness, reform state-owned enterprises, improve public service provision and energy sector viability, and build climate resilience. It said the RSF would support Pakistan’s efforts to build economic resilience to climate vulnerabilities and natural disasters.
The approval allows for an immediate disbursement of around $1 billion, bringing total disbursements under the EFF to about $2.1 billion. Additionally, it said, the RSF grants access to about $1.4 billion.
Important progress
Following the Executive Board discussion, Deputy Managing Director Nigel Clarke said Pakistan had made “important progress” in restoring macroeconomic stability despite a challenging environment.
“Since the approval of the Extended Fund Facility, the economy continues to recover, with inflation sharply lower and external buffers notably stronger,” he said, while noting risks to the outlook remained elevated, particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities. “Against this backdrop, the authorities need to maintain sound macroeconomic policies and accelerate reforms to safeguard the macroeconomic gains and underpin stronger and sustainable, private sector-led medium-term growth,” he said.
He said the implementation of the FY25 budget and the passage of key fiscal reforms such as the agricultural income tax underscored the process of rebuilding policymaking credibility. “Continuing to mobilize greater revenue from undertaxed sectors and the noncompliant will make the tax system more equitable and efficient,” he said, adding combined with spending discipline, this would strengthen sustainability, build resilience, and reduce the public sector’s crowding out of private credit.
“Timely implementation of power tariff adjustments has helped reduce the stock and flow of circular debt,” he said, adding cost-side reforms were also showing early signs of success but required acceleration to safeguard the energy sector’s viability and improve Pakistan’s competitiveness.
“The State Bank of Pakistan’s (SBP) tight monetary policy stance has been pivotal in reducing inflation to historic lows. Monetary policy should remain appropriately tight and data-dependent to ensure inflation is anchored within the SBP’s target range. A more flexible exchange rate will facilitate the adjustment to external and domestic shocks, aiding the rebuilding of reserves. Prompt action to address undercapitalized financial institutions and vigilance over the financial sector are necessary for financial stability. Strengthening of AML/CFT frameworks is also needed,” he said.
Clarke also emphasized the need to accelerate structural reforms to unlock competitiveness and attract high-impact private investment. “Reducing Pakistan’s vulnerability to extreme weather events will enhance macroeconomic stability and fiscal sustainability,” he said of the new RSF arrangement. “The reforms under the Resilience and Sustainability Facility aim to build resilience to natural disasters by strengthening public investment processes, supporting efficient use of scarce water resources, strengthening coordination of natural disaster response and financing, improving the information on climate-related risks, and supporting Pakistan in meeting its international commitments,” he added.