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Pakistan Explores Larger IMF Bailout
Pakistan is considering requesting an increase to its existing $7 billion IMF bailout programme as the Middle East conflict disrupts energy supplies and creates significant external financing pressures .
Finance Minister Muhammad Aurangzeb confirmed that while no formal request has been made yet, expanding the Extended Fund Facility (EFF) is “something which can be discussed” depending on how economic conditions evolve over the coming weeks .
The Financing Gap
A critical driver of the potential request is a $3.5 billion external financing gap that emerged after the United Arab Emirates (UAE) did not roll over its deposits despite earlier commitments linked to the IMF programme . Pakistan is scheduled to repay this amount by the end of April.
To bridge this gap, Pakistan is exploring multiple options:
| Option | Details |
|---|---|
| IMF augmentation | Additional $2-2.5 billion under existing $7 billion EFF |
| Saudi support | $3 billion new deposit + $5 billion existing facility extended |
| Eurobonds/Sukuk | Expected issuance this year |
| Panda bond | $250 million debut issue (first of $1 billion programme) next month |
| Commercial loans | Under active consideration |
Pakistan has already received $4 billion under the current IMF programme, with a staff-level agreement reached for the next $1.2 billion tranche (subject to Executive Board approval) .
War-Induced Economic Pressures
Finance Minister Aurangzeb described the ongoing Middle East conflict as “one of the largest supply shocks since COVID-19,” comparable in scale to the pandemic-era demand shock .
Key impacts on Pakistan’s economy include:
- Energy costs: Pakistan sources roughly 90% of its oil from the Gulf, making it acutely vulnerable to supply disruptions through the Strait of Hormuz
- Inflation: IMF projects inflation rising to 8.4% for FY2026-27, up from earlier estimates
- Growth: GDP growth forecast downgraded to 3.5% for next fiscal year
- Current account deficit: More than doubled to $5 billion (0.9% of GDP)
The IMF warned that in a severe conflict scenario involving energy infrastructure damage, oil prices could reach $125 per barrel, with global growth potentially falling below 2 percent—a “near-recession” environment .
Policy Response and Strategic Reserves
Aurangzeb outlined the government’s multi-pronged response:
- Supply chain stabilization and demand management measures
- Fiscally-neutral targeted subsidies to protect vulnerable populations
- Strategic petroleum reserve development — no longer relying solely on commercial reserves
- Accelerated renewable energy transition to reduce import dependence
“All options are on the table,” Aurangzeb stated, emphasizing that Pakistan remains committed to its IMF programme anchor while adapting to the external shock .
Saudi Support Bolsters Reserves
Saudi Arabia has stepped in with critical support, pledging an additional $3 billion in deposits and extending its existing $5 billion facility for a longer term—moving away from the previous annual rollover arrangement . This brings total Saudi deposits with Pakistan’s central bank to $8 billion, making Riyadh the largest bilateral contributor .
The Kingdom’s support, combined with Pakistan’s recent $1.4 billion Eurobond repayment (described by Aurangzeb as a “non-event”), signals continued commitment to external obligations .
Reserve Targets and Outlook
Pakistan aims to maintain foreign exchange reserves at around $18 billion (approximately 3.3 months of import cover) by the end of the fiscal year . Current reserves stand at roughly $16 billion, covering about three months of imports .
The IMF mission is expected to visit Pakistan next month for budget discussions, including deliberations on taxation measures and financing requirements . The Executive Board’s approval of the latest $1.2 billion tranche is expected by the end of April or early May .
Finance Minister Aurangzeb expressed confidence that Pakistan’s expected 4% GDP growth, remittances of around $41.5 billion, and targeted assistance to the poorest citizens could withstand the war shock for the current fiscal year ending June 30 . However, he noted that scenario planning for potential second and third-order effects continues, with implications for inflation, exports, and capital flows under active review .
