Pakistan has reached another important milestone in its ongoing economic reform program, as the International Monetary Fund (IMF) and Pakistani authorities agreed at the staff level on the third review of the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF).
While this agreement still awaits formal approval from the IMF Executive Board, it signals continued confidence in Pakistan’s reform trajectory and macroeconomic stabilization efforts.
IMF Pakistan Staff Level Agreement
Key Financial Impact
Upon approval:
- ~$1.0 billion will be disbursed under the EFF
- ~$210 million under the RSF
- Total disbursements under both programs will reach approximately $4.5 billion
This inflow will further strengthen Pakistan’s external position and support economic stability.
Macro Picture: Stabilization with Emerging Risks
The IMF noted that Pakistan’s economy has shown clear signs of recovery:
- Economic activity gained momentum after FY25 recovery
- Inflation has remained relatively contained
- Current account pressures have eased
- External buffers have improved
- Market confidence is gradually returning
However, risks remain elevated. The ongoing Middle East conflict poses a significant external threat through:
- Volatile oil prices
- Tighter global financial conditions
- Potential upward pressure on inflation
- Risks to growth and external balances
Fiscal Discipline Remains Central
Pakistan has committed to maintaining a tight fiscal stance:
- Targeting 1.6% primary surplus of GDP in FY26
- Aiming for 2% primary surplus in FY27
- Focus on debt reduction over the medium term
Key measures include:
- Broadening the tax base
- Improving expenditure discipline
- Enhancing coordination between federal and provincial governments
- Increasing spending on health, education, and social protection
Tax Reform & Revenue Mobilization
The Federal Board of Revenue (FBR) is undergoing structural transformation:
- Strengthening tax audits
- Expanding digital invoicing and production monitoring
- Introducing performance-based KPIs
- Improving internal governance
A newly established Tax Policy Office is also working on a medium-term tax reform strategy to ensure consistency and stability in tax policies.
Protecting the Vulnerable
Recognizing inflationary pressures, especially in food and energy:
- Expansion of the Benazir Income Support Programme (BISP)
- Inflation-adjusted cash transfers
- Wider beneficiary coverage
- Improved payment systems
At the same time, the government is committed to increasing health and education spending, supporting long-term human capital development.
Monetary Policy: Staying Tight and Flexible
The State Bank of Pakistan (SBP) will continue a data-dependent, tight monetary policy:
- Ready to raise interest rates if inflation rises
- Maintaining exchange rate flexibility as a shock absorber
- Ensuring liquidity for imports and external payments
This approach is critical given global uncertainties, particularly energy price volatility.
Energy Sector: The Core Structural Challenge
Energy reforms remain one of the most crucial—and politically sensitive—areas:
- Focus on eliminating circular debt
- Ensuring cost-recovery tariffs
- Avoiding broad-based subsidies due to high fiscal cost
Reform priorities include:
- Improving transmission and distribution efficiency
- Privatizing inefficient generation companies
- Transitioning to a competitive electricity market
- Expanding renewable energy capacity
Structural Reforms & Privatization
Pakistan is advancing broader structural reforms aimed at:
- Reducing government footprint in the economy
- Reforming State-Owned Enterprises (SOEs)
- Lowering regulatory barriers
- Encouraging private sector-led growth
Additionally, efforts are underway to:
- Strengthen governance
- Improve institutional capacity
- Intensify anti-corruption frameworks
Climate Resilience: A Growing Priority
Under the RSF program, Pakistan is making progress on climate-related reforms:
- Promoting green mobility and transport decarbonization
- Strengthening climate data and risk management systems
- Improving disaster risk financing frameworks
Future priorities include:
- Enhancing water system resilience
- Better targeting climate-related expenditures
- Aligning energy reforms with climate commitments
The staff-level agreement reflects continued IMF confidence in Pakistan’s policy direction, but it also underscores that:
- Stabilization is still fragile
- External risks remain significant
- Structural reforms must accelerate and sustain momentum
For investors and policymakers alike, the message is clear:
Pakistan is on a stabilization path—but discipline, reform execution, and external conditions will determine its durability.
