ISLAMABAD – Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on the fourth review of the Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF), paving the way for about USD1.2 billion in additional financing, subject to approval by the IMF Executive Board.
The agreement was announced on October 7 after an IMF team led by Iva Petrova held discussions with Pakistani authorities in Karachi and Islamabad from September 23 to October 7 as part of the 2026 Article IV consultation and reviews of the two programmes.
According to the IMF, approval by its Executive Board would give Pakistan access to about USD1 billion under the EFF and approximately USD210 million under the RSF. This would take total disbursements under the two arrangements to about USD5.7 billion. The IMF said programme implementation under the EFF had remained broadly on track despite a challenging external environment, while Pakistani authorities had continued work on climate-related reforms under the RSF.
IMF highlights improved economic stability
The IMF said the authorities had navigated the fallout of the Middle East conflict with the programme’s backing. “Supported by the EFF, the authorities have successfully navigated the impact of the Middle East conflict, and strong policies have helped preserve macroeconomic stability,” the report said.
“Real GDP growth reached 4 percent in the first three quarters of FY26, and although higher energy prices and supply disruptions weakened somewhat the momentum, FY26 growth is estimated at 3.6 percent,” it said. Headline inflation, which peaked in May, eased to about 10.3 percent in September, while core inflation remained contained, the fund said.
“The current account was broadly balanced in FY26 supported by strong remittances, and gross reserves rose to about US$21½ billion by end-September,” the report added. The fund said sovereign rating upgrades and renewed international market access pointed to stronger policy credibility. “Nevertheless, risks remain high, particularly from geopolitical tensions, volatile energy prices, tighter global financial conditions, and trade disruptions,” it warned.
The assessment outlined several policy priorities for Pakistan, including maintaining fiscal discipline, improving public financial management, protecting social spending, maintaining an appropriate monetary stance and exchange rate flexibility, and strengthening the financial viability of the energy sector. The IMF said implementation of the FY27 budget, including an underlying primary surplus target of 2% of GDP, would be critical to putting public debt on a durable downward path. It also called for further revenue administration reforms, including risk-based audits, digital invoicing and greater use of third-party data.
On social spending, the fund said spending on health and education had increased from 2.2% of GDP in FY24 to 2.5% in FY26, with the government committed to raising it to 2.8% in FY27. It also said targeted cash-transfer benefits were planned to increase, while calling for the fuel support scheme to be phased out promptly because of its high cost and broad targeting.
Schehzad highlights IMF assessment
Commenting on the agreement, Advisor to Finance Minister, Khurram Schehzad described it as a significant milestone in Pakistan’s economic stabilisation and reform process. In a post on X, he highlighted the IMF’s assessment that programme implementation had remained broadly on track and that stronger policies had helped Pakistan preserve macroeconomic stability despite external shocks.
Schehzad also pointed to the rise in foreign exchange reserves to about USD21.5 billion, the broadly balanced current account supported by remittances, sovereign rating upgrades and renewed international market access as indicators cited by the IMF. He said the IMF’s assessment also recognised progress in public financial management, revenue administration, energy-sector reforms and climate measures under the RSF.
Schehzad further highlighted the broader reform agenda covering privatisation, state-owned enterprise governance, competition, trade and regulatory reforms, governance and financial-market development. He said the IMF assessment showed that macroeconomic stabilisation was being accompanied by continued reform implementation and stressed the importance of sustaining that momentum to support investment, exports, productivity and job creation. The staff-level agreement remains subject to consideration and approval by the IMF Executive Board.
Energy and structural reforms remain priorities
The IMF further stressed the need for timely tariff adjustments and cost-reducing reforms in the energy sector to prevent renewed accumulation of circular debt. It identified improved efficiency, greater private participation in distribution, stronger electricity market competition, cost recovery in the gas sector and reduced unaccounted-for gas losses as key priorities.
The Article IV consultation also focused on longer-term structural reforms aimed at shifting the economy towards higher-value activities. The IMF highlighted competition, privatisation, regulatory and trade reforms, improved governance and transparency of state-owned enterprises, stronger anti-corruption institutions and deeper financial markets.
Climate-related reforms under the RSF were also progressing, with work under way to incorporate climate considerations into public investment planning, strengthen disaster-risk financing and coordination, improve irrigation water pricing and collection, better target electricity subsidies, introduce energy-efficiency standards and advance transport decarbonisation. Reuters reported that Pakistan is the most vulnerable major Asia-Pacific economy to a prolonged Middle East conflict, given its reliance on Gulf energy imports, remittances and financial support from the region.
