Pakistan, IMF Reach Staff-Level Agreement on $1.2 Billion Funding

Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement that could unlock about $1.2 billion under the country’s ongoing loan programmes, subject to approval by the IMF Executive Board.

The agreement covers the fourth review of the 37-month Extended Fund Facility (EFF) and the third review of the 28-month Resilience and Sustainability Facility (RSF). Pakistan would receive about $1 billion under the EFF and $210 million under the RSF after Board approval.

The latest agreement would take total disbursements under the two arrangements to about $5.7 billion.

The IMF mission, led by Iva Petrova, held discussions with Pakistani authorities in Karachi and Islamabad from September 23 to October 7. The talks also covered the 2026 Article IV consultation.

IMF Calls for Fuel Subsidy Phase-Out

The IMF has called for the government to phase out its fuel support scheme promptly, citing its high fiscal cost and broad targeting.

Petrova said any future fuel support, if oil prices rise unexpectedly, should remain limited and temporary. She also said assistance should target eligible households through established social protection programmes and remain within the FY27 budget.

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The government had introduced a three-month fuel support scheme with an allocation of Rs75 billion. The programme aimed to provide relief of Rs100 per litre for monthly consumption limits set for motorcycles and cars up to 800cc.

The IMF had raised concerns about the broad nature and fiscal cost of the scheme.

Health and Education Spending to Rise

The IMF said Pakistan remains committed to increasing health and education spending to 2.8% of GDP in FY27.

Petrova said the authorities had reversed a long-term decline in spending in these sectors. Combined health and education spending rose from 2.2% of GDP in FY2023-24 to 2.5% in FY26, according to the IMF.

Finance Secretary Imdad Ullah Bosal said Pakistan had met its FY26 commitment on health and education spending.

The IMF also welcomed plans to increase targeted cash transfers. It said improved beneficiary coverage and payment systems would strengthen protection for vulnerable households.

Pakistan Maintains Economic Stability

The IMF said Pakistan had managed the impact of the Middle East conflict while maintaining macroeconomic stability.

Real GDP growth reached 4% during the first three quarters of FY26, while full-year growth is estimated at 3.6%.

Headline inflation moderated to about 10.3% in September after reaching a peak in May. The IMF said core inflation remained contained.

The current account remained broadly balanced in FY26, supported by strong remittances. Gross foreign exchange reserves rose to more than $21 billion by the end of September, according to the Fund.

However, the IMF warned that risks remain high. These include geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.

Government Commits to 2% Primary Surplus

The government has assured the IMF that it will achieve a primary budget surplus of 2% of GDP during the current fiscal year.

The IMF said the target remains important for putting public debt on a sustainable downward path.

Pakistan plans to strengthen revenue collection through risk-based audits, digital invoicing and greater use of third-party data.

The Fund also called for a medium-term tax reform strategy. The aim is to create a simpler and fairer tax system while protecting revenue and reducing economic distortions.

IMF Pushes SOE and Governance Reforms

Pakistan is also expected to strengthen public financial management and improve transparency in budgeting, public investment, procurement and government cash management.

The IMF stressed the need to reduce debt rollover risks and servicing costs. It also encouraged further development of the domestic government securities market and diversification of the investor base.

Petrova said the Article IV consultation focused on structural reforms aimed at moving the economy towards higher-value activities.

The reforms include strengthening competition, reducing regulatory and trade barriers, advancing privatisation, and improving governance and transparency in state-owned enterprises.

The IMF also called for stronger governance and anti-corruption institutions.

Energy Reforms Remain a Priority

The Fund again stressed the importance of timely tariff adjustments and cost-reducing reforms to prevent renewed accumulation of circular debt.

It called for greater efficiency in the power sector, increased private participation in distribution, stronger competition in electricity markets and continued gas-sector cost recovery.

The IMF also urged Pakistan to reduce unaccounted-for gas losses.

On monetary policy, the Fund said the State Bank of Pakistan should maintain an appropriately tight policy stance until inflation returns sustainably to its target range.

It also supported continued exchange-rate flexibility, describing it as an important shock absorber for the economy.

IMF Seeks Stronger Private Sector Growth

The IMF said structural reforms should help raise productivity, increase labour force participation and create more jobs.

The Fund also highlighted the need for greater private investment and stronger exports.

Deeper financial markets, improved energy-sector efficiency, stronger human and capital development, and a simpler tax system were identified as key elements of the reform agenda.

Following the conclusion of the talks, IMF Mission Chief Iva Petrova held a wrap-up meeting with Finance Minister Muhammad Aurangzeb at the Q Block of the Pakistan Secretariat in Islamabad.

Finance Secretary Imdad Ullah Bosal and IMF Resident Representative Mahir Binici also attended the meeting.