IMF backs SBP’s tight monetary policy

May 10, 2026 (MLN): The International Monetary Fund (IMF) has praised the State Bank of Pakistan’s (SBP) proactive monetary policy stance, saying the central bank acted timely to keep inflation expectations under control amid rising global commodity prices and heightened external uncertainty triggered by the ongoing Middle East war.

In a statement issued after completing the third review of Pakistan’s economic reform program under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF), the IMF Executive Board approved an immediate disbursement of around $1.32 billion for Pakistan.

The amount includes around $1.1bn (SDR 760 million) under the EFF arrangement and approximately $220 million (SDR 154 million) under the RSF arrangement, taking total disbursements under both programs to nearly $4.8bn.

The IMF specifically highlighted SBP’s role in maintaining macroeconomic stability, stating that the central bank “has acted proactively to maintain an appropriately tight monetary policy stance aimed at keeping inflation expectations anchored.”

The lender emphasized that the SBP should continue to carefully monitor the possible second-round impact of higher commodity and energy prices on domestic inflation, wages, and public expectations.

The Fund also stressed the importance of maintaining exchange rate flexibility, describing it as the “main shock absorber” for the economy while Pakistan continues rebuilding its foreign exchange reserves.

“Efforts to deepen the FX market should continue, including through a carefully-sequenced medium-term FX liberalization,” the IMF said.

The IMF further urged authorities to continue safeguarding financial stability by ensuring banks remain adequately capitalized and by addressing capital shortfalls in microfinance banks.

Pakistan’s foreign exchange reserves showed improvement during the review period, with gross reserves reaching $16 billion at the end of December 2025, compared to $14.5bn at the end of June 2025.

The Fund noted that Pakistan’s economic reform program has made “significant progress” in stabilizing the economy and restoring investor confidence despite a difficult global environment.

According to the IMF, GDP growth accelerated during the first nine months of FY26, inflation remained contained, and the current account stayed broadly balanced.

On the fiscal front, the IMF said Pakistan’s performance remained strong, with the government expected to achieve a primary surplus of 1.6% of GDP in FY26 in line with agreed targets.

However, the lender warned that Pakistan must continue pursuing disciplined macroeconomic policies and accelerate structural reforms to protect the economy from external shocks and ensure sustainable long-term growth.

The IMF called for continued fiscal consolidation through stronger revenue mobilization, broader taxation, improved compliance, and better public financial management.

It also emphasized the need to continue reforms in the energy sector by keeping electricity, gas, and fuel prices aligned with actual costs while protecting vulnerable consumers through targeted subsidies.

The Fund said reforms aimed at reducing inefficiencies and costs in the energy chain would improve the sector’s financial viability and enhance Pakistan’s competitiveness.

The IMF also pushed for faster implementation of structural reforms, including privatization, SOE reforms, anti-corruption measures, and steps to improve the overall business environment by reducing distortions and unnecessary regulations.

Regarding climate resilience, the IMF said reforms under the RSF program are helping Pakistan strengthen disaster response mechanisms, improve water resource management, integrate climate considerations into public investment planning, and enhance climate-related financial disclosures by banks and corporates.

Nigel Clarke, IMF Deputy Managing Director and Acting Chair, said Pakistan’s continued strong implementation of the reform agenda has helped rebuild fiscal and external buffers while supporting economic stability.

“Pakistan needs to maintain strong macroeconomic policies while accelerating reform efforts, which are critical to managing further shocks and fostering higher sustainable medium-term growth,” he said.

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