The International Monetary Fund has inked a staff-level agreement (SLA) with Pakistan on the first review of its 37-month $7 billion bailout, as well as a new 28-month arrangement under the lender’s Resilience and Sustainability Facility covering an additional $1.3 billion.
In a statement, IMF mission head Nathan Porter noted the SLA was subject to approval of the IMF’s Executive Board. “Upon approval, Pakistan will have access to about $1 billion under the [Extended Fund Facility], bringing total disbursements under the program to about $2 billion,” he said.
Porter noted that Pakistan had made “significant progress” over the past 18 months in “restoring macroeconomic stability and rebuilding confidence despite a challenging global environment.” Acknowledging moderate economic growth, he hailed low levels of inflation, improving financial conditions, narrowed sovereign spreads, and stronger external balances.
According to Porter, economic activity is expected to steadily improve, but downside risks remain elevated. “Potential macroeconomic policy slippages—driven by pressures to ease policies—along with geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism could undermine the hard-won macroeconomic stability,” he warned, adding climate-related risks were a significant challenge requiring a need to build resilience, including through adaptation measures.
“In this regard, it is critical to stay the course and entrench the progress achieved over the past one and a half years, building resilience by further strengthening public finances, ensuring price stability, rebuilding external buffers and eliminating distortions in support of stronger, inclusive and sustained private sector-led growth,” he said.
The IMF statement said authorities had assured the lender of their commitment to the EFF-supported program. They, it said, had also shared plans to supplement efforts by advancing reforms under the RSF-supported program to address economic vulnerabilities to climate shocks and build resilience. Among authorities’ policy priorities, it cited continued fiscal consolidation to reduce public debt while creating space for social and development spending and reducing crowding out of private investment.
“The authorities are on track to achieve an FY25 underlying primary surplus of at least 1 percent of GDP and committed to sustaining consolidation in the FY26 budget,” it said, noting an intent to preserve the Benazir Income Support Program (BISP), and create savings on energy subsidies and prioritize development spending.
Another priority is fiscal structural reforms, with authorities aiming to continue efforts to enhance revenue mobilization, spending efficiency, and transparency, broadening the tax base. It hailed recent amendments to Agriculture Income Tax regimes in all four provinces, stressing on effective implementation as crucial to its success. “The authorities also remain committed to improving public financial management, ensuring spending transparency through the electronic Pakistan Acquisition and Disposal System, and developing debt management to strengthen sustainability and governance,” it added.
A third priority is maintaining an appropriately tight monetary policy to ensure inflation remains anchored within the medium-term target range of 5–7 percent. “They are committed to preserving a fully functioning foreign exchange market to support exchange rate flexibility while rebuilding FX reserve buffers,” it added.
Another priority is continuing fundamental cost-reducing reforms in the energy sector to enhance viability and lower tariffs. The IMF noted timely implementation of electricity and gas tariff adjustments, along with the early impact of reforms, had helped reduce the circular debt. “It is necessary to accelerate cost-side reforms, including improving distribution efficiencies, integrating captive power into the electricity grid, enhancing the transmission system, privatizing inefficient generation companies, and expanding renewable energy adoption,” it added.
Further, the IMF listed delivering structural reform agenda to reduce inefficiencies, boost productivity, and support private sector development, as well as scaling up climate reform efforts to build resilience as government priorities.
“The authorities will advance their efforts to fully implement the [state-owned enterprises] governance framework across all SOEs, while adopting appropriate governance mechanisms and safeguards for the Pakistan Sovereign Wealth Fund,” it said, stating this would further strengthen institutional capacity to fight corruption and significantly reduce trade barriers to support inclusive growth and a level playing field for business and investment.
Supported by the IMF’s RSF, read the statement, authorities aimed to strengthen public investment for projects that enhance disaster resilience; improve the efficiency of scarce water resource usage; enhance intergovernmental coordination on disaster financing; improve information architecture and disclosure of financial and corporate climate-related risks; and promote green mobility to mitigate significant pollution and adverse health impacts.
“The IMF team is grateful to the Pakistani authorities, private sector, and development partners for their hospitality during the visit to Islamabad and Karachi, and fruitful discussions,” the statement concluded, referring to the visit that spanned Feb. 24-March 14.