IMF Reaches Staff-Level Agreement With Pakistan on 4th EFF Review, Unlocking $1.2 Billion Loan
The International Monetary Fund reached a staff-level agreement with Pakistan on the fourth review of its Extended Fund Facility and the third review of its Resilience and Sustainability Facility.
The agreement could release about $1.2 billion once the IMF Executive Board approves it.
The deal clears the way for roughly $1.0 billion (SDR 760 million) under the Extended Fund Facility and about $210 million (SDR 154 million) under the Resilience and Sustainability Facility. Total disbursements under the two arrangements would then reach about $5.7 billion.
The IMF team, led by Iva Petrova, held talks in Karachi and Islamabad from September 23 to October 7, 2026. The talks also covered the 2026 Article IV consultation.
“Supported by the EFF, the authorities have successfully navigated the impact of the Middle East conflict, and strong policies have helped preserve macroeconomic stability,” Petrova said in a statement.
Economy Holds Up Despite Shocks
The IMF estimated real GDP growth at 3.6 percent for fiscal 2026. Growth reached 4 percent in the first three quarters, then slowed as higher energy prices and supply disruptions weighed on momentum.
Headline inflation eased to about 10.3 percent in September after peaking in May. Core inflation stayed contained. The current account was broadly balanced in FY26, helped by strong remittances. Gross reserves rose to about $21.5 billion by the end of September.
The Fund said sovereign rating upgrades and renewed access to international markets point to stronger policy credibility. It cautioned that risks remain high, citing geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.
Policy Priorities
The IMF said Islamabad should keep to the FY27 budget, which is built around an underlying primary surplus of 2.0 percent of GDP. It called for revenue administration reforms, including risk-based audits, digital invoicing and the use of third-party data. It also urged a medium-term tax reform strategy to make the system “fairer, simpler, and more growth friendly.”
On social spending, the IMF said health and education outlays rose from 2.2 percent of GDP in FY24 to 2.5 percent in FY26. The government has committed to raising them to 2.8 percent in FY27. The Fund also urged the government to phase out the fuel support scheme promptly, citing its high cost and broad targeting. Any future fuel support should be limited, time-bound and targeted through established social assistance programs.
The IMF said the State Bank of Pakistan should keep policy appropriately tight so that inflation returns durably to its target range. It also called for continued exchange rate flexibility as a shock absorber, along with further reserve accumulation and gradual liberalization of the foreign exchange regime.
In the energy sector, the Fund called for timely tariff adjustments and cost-reducing reforms to prevent renewed circular debt. It also called for more private participation in distribution, deeper electricity market competition, gas sector cost recovery and lower unaccounted-for gas losses.
Structural and Climate Reforms
The Article IV consultation focused on structural reforms. These include strengthening competition, reducing regulatory and trade barriers, advancing privatization, improving governance and transparency at state-owned enterprises, and strengthening anti-corruption institutions.
Under the RSF, Pakistan is working to build climate resilience. The IMF cited progress in factoring climate into public investment planning and in disaster risk financing. Further reforms are under way on irrigation water pricing and collection, better-targeted electricity subsidies, energy-efficiency standards and transport decarbonization.
The staff-level agreement remains subject to approval by the IMF Executive Board.
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