IMF, Pakistan reach staff-level agreement for $1.2bn loan

Washington: The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistan to provide approximately $1.2 billion under its ongoing financial programs, according to a press release.

The agreement covers the third review of the 37-month Extended Fund Facility (EFF) and the second review of the 28-month Resilience and Sustainability Facility (RSF).

The staff-level agreement is subject to approval by the IMF Executive Board. Upon approval, Pakistan will have access to about $1.0 billion under the EFF and about US$210 million (SDR 154 million) under the RSF, bringing total disbursements under the two arrangements to about US$4.5 billion.

The IMF noted that policies supported under the EFF have helped strengthen Pakistan’s economy and rebuild market confidence. Following a recovery in FY25, economic activity gained further momentum in the early part of the current fiscal year. Inflation and the current account remained contained, while external buffers continued to improve.

However, the IMF cautioned that ongoing conflict in the Middle East poses risks to the outlook, as volatile energy prices and tighter global financial conditions could increase inflationary pressures and weigh on growth and the current account balance.

“The authorities remain committed to pursuing sound and prudent macroeconomic policies to preserve recent gains in macro-financial stability,” the IMF said, adding that Pakistan also aims to deepen structural reforms and strengthen social protection systems to shield vulnerable populations from rising energy costs.

According to the IMF, Pakistan is focused on ensuring fiscal sustainability and reducing its still-high public debt burden over the medium term. Efforts are underway to achieve a primary surplus of 1.6 percent of GDP in FY26 and an underlying primary balance of 2 percent in FY27.

The IMF emphasized that continued implementation of fiscal reforms is critical. Revenue mobilization efforts are already showing results, with the Federal Board of Revenue (FBR) advancing its transformation plan and introducing key performance indicators.

Key reform priorities include strengthening tax audits, expanding digital invoicing and production monitoring, and improving internal governance within the FBR. The newly established Tax Policy Office is also working on a medium-term tax reform strategy aimed at ensuring stability and revenue neutrality.

In addition, the government is working to improve fiscal coordination between federal and provincial authorities and enhance public financial management.

Authorities are also prioritizing targeted support for vulnerable households by strengthening the Benazir Income Support Programme (BISP), including inflation-adjusted cash transfers. At the same time, they aim to increase spending on health and education to support human capital development and inclusive growth.

On monetary policy, the IMF noted, the State Bank of Pakistan (SBP) remains committed to maintaining a tight, data-driven stance to keep inflation within its target range. The central bank stands ready to raise interest rates if inflationary pressures intensify.

The IMF stressed that exchange rate flexibility should continue to serve as a key shock absorber, particularly amid external risks, while ensuring the banking system can support import financing and external payments.

The authorities also reiterated their commitment to energy sector reforms to ensure financial viability and prevent the recurrence of circular debt. This includes timely tariff adjustments to ensure cost recovery and avoiding untargeted energy subsidies due to their fiscal burden and inefficiency.

Efforts to strengthen institutions and combat corruption are ongoing to ensure a level playing field for businesses and attract investment, the IMF added.