Pakistan Reaches Staff-Level Agreement With IMF for $1.2 Billion Loan Tranche

Pakistan has reached a staff-level agreement with the International Monetary Fund (IMF) on the third review of its Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF), bringing the country closer to receiving fresh financial support.

The agreement, announced Friday, remains subject to approval by the IMF Executive Board. Once cleared, Pakistan will gain access to approximately $1 billion under the EFF program and about $210 million under the RSF, raising total disbursements under both arrangements to roughly $4.5 billion.

The IMF said Pakistan’s reform program remains broadly on track, with progress recorded in fiscal consolidation, inflation management, energy-sector restructuring, and structural economic reforms aimed at stabilizing the economy and restoring investor confidence.

According to the Fund, economic activity has strengthened following recovery in fiscal year 2025, while inflation and the current account balance have remained contained. External buffers have also improved, although global uncertainties—particularly geopolitical tensions in the Middle East—pose risks through volatile energy prices and tighter financial conditions.

The IMF noted that Pakistani authorities remain committed to maintaining prudent macroeconomic policies to safeguard recent stabilization gains while expanding social protection measures to shield vulnerable households from rising living costs.

Under the program, Pakistan has pledged to maintain fiscal discipline, targeting a primary budget surplus of 1.6 percent of GDP in FY2026 and moving toward a 2 percent surplus in FY2027. Efforts are underway to broaden the tax base, strengthen expenditure controls, and improve coordination between federal and provincial governments.

Revenue reforms led by the Federal Board of Revenue are focusing on stronger tax audits, expanded digital invoicing, improved production monitoring, and enhanced internal governance. A newly established Tax Policy Office is also working on a medium-term strategy aimed at ensuring tax stability and sustainable revenue growth.

The government has also committed to strengthening social protection through expanded coverage and inflation-adjusted payments under the Benazir Income Support Program, alongside increased spending on health and education to support inclusive growth.

On monetary policy, the State Bank of Pakistan is expected to maintain a data-dependent and tight policy stance to keep inflation within target ranges. Exchange rate flexibility will continue to act as a buffer against external shocks, particularly amid global commodity price volatility.

Energy-sector reforms remain a central pillar of the program. Authorities have pledged to prevent a resurgence of circular debt through timely tariff adjustments, reduced subsidies, improved transmission efficiency, privatization of inefficient generation companies, and gradual transition toward a competitive electricity market and renewable energy adoption.

The IMF also highlighted ongoing structural reforms aimed at improving governance, reducing market distortions, advancing privatization of state-owned enterprises, and strengthening anti-corruption frameworks to support private-sector-led growth.

Climate-focused reforms backed by the RSF are progressing, including initiatives to promote green transport, improve climate-risk management systems, strengthen water resilience, and develop a coordinated disaster risk financing framework.

An IMF mission led by Iva Petrova held discussions with Pakistani authorities in Karachi and Islamabad between February 25 and March 2, followed by virtual consultations that concluded with the staff-level agreement.

Approval by the IMF Executive Board will formally unlock the next tranche of financing and mark another milestone in Pakistan’s ongoing economic stabilization program.