Pakistan, IMF seal $1.2bn staff-level deal

October 08, 2026 (MLN): The International Monetary Fund (IMF) staff and Pakistani authorities have reached a staff-level agreement on the fourth review under the 37-month Extended Fund Facility (EFF) and the third review under the 28-month Resilience and Sustainability Facility (RSF), clearing the way for about $1.2bn in disbursements once the IMF Executive Board approves it.

Pakistan will gain access to about $1.0bn (SDR 760mn) under the EFF and about $210mn (SDR 154mn) under the RSF, taking total disbursements under the two arrangements to about $5.7bn.

An IMF team led by Iva Petrova held talks in Karachi and Islamabad from September 23 to October 7, 2026.

The discussions covered the 2026 Article IV consultation along with the EFF and RSF reviews, according to a press release issued by the fund.

Iva Petrova said the team was grateful to the authorities, the private sector and development partners for their hospitality and constructive engagement.

The Fund said programme implementation under the EFF remained broadly on track despite a challenging external environment.

It said the authorities had successfully navigated the fallout from the Middle East conflict and kept macroeconomic stability intact through strong policies.

Real GDP growth reached 4% in the first three quarters of FY26, but higher energy prices and supply disruptions dented momentum, leaving full-year growth estimated at 3.6pc.

Headline inflation eased to about 10.3% in September after peaking in May, while core inflation stayed contained.

The current account was broadly balanced in FY26 on the back of strong remittances, and gross reserves climbed to about $21.5bn by end-September.

The IMF also pointed to sovereign rating upgrades and renewed international market access as signs of stronger policy credibility.

It cautioned, however, that risks remain high from geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.

Fiscal policy

The IMF said steadfast implementation of the FY27 budget, anchored by an underlying primary surplus of 2% of GDP, was critical to putting public debt on a durable downward path.

It said revenue administration reforms, including better risk-based audits, digital invoicing and use of third-party data, would help safeguard revenue targets.

The Fund also called for a comprehensive medium-term tax reform strategy to make the system fairer, simpler and more growth-friendly while protecting revenues and reducing distortions.

Public financial management

The Fund noted progress in improving the efficiency and transparency of the budget process, public investment, procurement and government cash management.

It said the authorities remained committed to reducing debt rollover risks and servicing costs amid elevated gross financing needs, while developing the domestic government securities market and broadening the investor base.

Social spending

According to the IMF, the authorities have reversed the long-term decline in health and education spending, lifting it from 2.2% of GDP in FY24 to 2.5% in FY26.

They aim to raise it further to 2.8% in FY27, while a planned increase in targeted cash-transfer benefits and better coverage and payment systems would strengthen protection for vulnerable households.

The Fund urged that the fuel support scheme be phased out promptly because of its high cost and broad targeting.

It said any future fuel support, should oil prices surprise on the upside, must be limited, timebound, targeted through established social assistance programmes and accommodated within the FY27 budget.

Monetary and exchange rate policy

The IMF said the State Bank of Pakistan (SBP) should keep an appropriately tight policy stance to ensure inflation returns durably to its target range.

It said exchange rate flexibility should continue to act as a shock absorber.

Further reserve accumulation, gradual liberalisation of the foreign exchange regime and deeper domestic financial markets would add to resilience and support private sector development.

Energy sector

The Fund said timely tariff adjustments and cost-reducing reforms remain essential to prevent fresh circular debt build-up while protecting vulnerable consumers.

Its priorities include improving sector efficiency, advancing private participation in distribution, deepening electricity market competition, maintaining gas sector cost recovery and cutting unaccounted-for gas losses.

Article IV and structural reforms

The Article IV consultation focused on reforms to shift the economy towards higher value-added activities and narrow gaps with peer countries.

These include strengthening competition, reducing regulatory and trade barriers, advancing privatisation, improving SOE governance and transparency, and bolstering governance and anti-corruption institutions.

The IMF said these measures, together with a simpler tax system, greater resources for human and capital development, a more cost-efficient energy sector and deeper financial markets, were critical to raise productivity, labour force participation and job creation, and to support private investment and exports.

Climate reforms under RSF

Under the RSF, the authorities are continuing to build climate resilience, the IMF said, with recent progress in mainstreaming climate considerations into public investment planning and strengthening disaster risk financing and coordination.

Further reforms are advancing on irrigation water pricing and collection, better-targeted electricity subsidies, energy-efficiency standards and transport decarbonization.

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