Pakistan IMF reach agreement on loan reviews to release $1.2 billion following key economic and climate policy reviews.
Pakistan and the International Monetary Fund have reached a staff-level agreement following the fourth review of the Extended Fund Facility and third review of the Resilience and Sustainability Facility. Subject to Executive Board approval, the deal unlocks $1.2 billion in external financing to preserve macroeconomic stability and build climate resilience.
ISLAMABAD, October 8: The International Monetary Fund (IMF) has reached a staff-level agreement with Pakistani authorities on the fourth review under the $7 billion Extended Fund Facility (EFF) and the third review under the $1.4 billion Resilience and Sustainability Facility (RSF).
The staff-level agreement follows detailed discussions conducted in Karachi and Islamabad between September 23 and October 7 by an IMF mission led by Iva Petrova. The consultations also encompassed the 2026 Article IV review of the country’s economic policies.
Once approved by the IMF Executive Board, the deal will grant Pakistan access to approximately $1.2 billion in additional financing. This comprises roughly $1 billion (SDR 760 million) under the EFF and $210 million (SDR 154 million) under the RSF. The prospective drawdown will elevate total cumulative disbursements under both program arrangements to approximately $5.7 billion.
The lending institution noted that program implementation under the 37-month EFF arrangement has remained broadly on track, even as external conditions presented notable headwinds. The IMF highlighted that Pakistani authorities successfully contained the macroeconomic fallout from the Middle East conflict through the execution of strong fiscal and monetary measures.
According to the Fund’s assessment, Pakistan’s real gross domestic product (GDP) expanded by 4 percent across the first three quarters of fiscal year 2026. Although economic momentum subsequently eased due to higher energy prices and international supply chain disruptions, full-year GDP growth for FY26 is estimated at 3.6 percent. Headline inflation moderated to 10.3 percent in September after reaching a peak in May, while core inflation pressures remained controlled.
The external account was supported by robust workers’ remittances, maintaining a broadly balanced current account through FY26. Gross official foreign exchange reserves held by the State Bank of Pakistan (SBP) expanded to approximately $21.5 billion by the end of September. Recent sovereign credit rating upgrades and renewed access to international commercial debt markets were cited by the IMF as evidence of strengthening policy credibility.
However, the IMF warned that external risks remain elevated. Potential economic headwinds stem from volatile international energy prices, persistent geopolitical friction, tighter foreign financial conditions, and potential trade disruptions.
Pakistan IMF Reach Agreement on FY27 Fiscal Strategy and Structural Reforms
To safeguard financial stability, the Fund called for strict implementation of the FY27 budget, which is anchored by a target primary surplus of 2 percent of GDP. The fiscal trajectory is to be reinforced through structural tax measures and revenue administration improvements, including the deployment of digital invoicing, third-party data integration, and risk-based tax audits. The IMF advised the government to formulate a comprehensive medium-term tax reform strategy aimed at broadening the tax base, simplifying compliance, and eliminating economic distortions.
On public expenditure, the IMF urged the prompt phase-out of generalized fuel support schemes, citing their high fiscal cost and broad-based delivery. The Fund stated that any future energy relief measures—should global oil prices spike—must be strictly targeted, time-bound, integrated into established social assistance networks, and fully accommodated within existing budget limits.
The Fund commended the government for halting the long-term decline in public social spending. Social allocations for health and education increased from 2.2 percent of GDP in FY24 to 2.5 percent in FY26, with an official commitment to expand spending further to 2.8 percent of GDP in FY27 alongside expanded targeted cash transfer programs.
Regarding monetary management, the IMF instructed the SBP to maintain an “appropriately tight” monetary stance to guide inflation back toward its target band. The SBP was also advised to maintain exchange rate flexibility as a primary shock absorber, continue accumulating foreign exchange reserves, and gradually liberalize the foreign exchange market.
In the energy sector, the Fund emphasized the need for timely electricity and gas tariff adjustments to prevent the recurrence of circular debt. Priority reform areas include increasing distribution efficiency, introducing private sector participation in power distribution companies, fostering competition in the power market, and reducing unaccounted-for gas losses.
Under the RSF climate agenda, the IMF noted progress in integrating climate factors into public investment planning and disaster risk finance. Ongoing RSF commitments focus on reforming irrigation water pricing, restructuring electricity subsidies, establishing energy efficiency standards, and pursuing transport decarbonization.
Following the conclusion of talks, Minister for Finance Muhammad Aurangzeb held a formal wrap-up meeting in Islamabad with IMF Mission Chief Iva Petrova.
Background
Pakistan originally secured the 39-month $7 billion EFF facility in July 2024. In March 2025, staff-level consensus was reached on the first EFF review alongside the approval of the $1.4 billion RSF facility. The IMF Executive Board approved a $1 billion EFF tranche and the RSF arrangement in May 2025. A second EFF review and initial RSF review concluded with staff-level agreement in October 2025, leading to Board approval for $1.2 billion in combined disbursements in December 2025. Following a third EFF review mission in March 2026, the IMF Board authorized the release of $1.32 billion in combined financing in May 2026.
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