A staff-level agreement has been reached between Pakistan and the International Monetary Fund (IMF) on the third review of the 37-month Extended Fund Facility (EFF), paving the way for Pakistan to receive a tranche of $1.2 billion.
According to the IMF statement, Pakistan’s recent economic reforms, efforts to reduce inflation, and measures to control the current account deficit were appreciated. However, it also warned that ongoing tensions in the Middle East and fluctuations in energy prices could pose risks to Pakistan’s economy.
Fiscal Targets
The IMF emphasized the need for the State Bank of Pakistan to maintain a tight monetary policy and indicated the possibility of further interest rate hikes if required. The Government of Pakistan has set a primary surplus target of 1.6% for fiscal year 2026, increasing to 2% in fiscal year 2027.
It also stressed expanding the tax base, implementing reforms in the Federal Board of Revenue (FBR), and controlling expenditures to reduce the fiscal deficit. The government has pledged to reduce market intervention, accelerate privatization of state-owned enterprises, and take strict action against corruption to boost investment.
Focus on Social and Climate Reforms
On social protection, the IMF noted that efforts are being made to reduce the impact of inflation on low-income groups by expanding the Benazir Income Support Programme (BISP), increasing cash assistance, and improving payment systems. Pakistan has also reaffirmed its commitment to increasing budgets for health, education, and social protection, along with ensuring fair fiscal burden-sharing between federal and provincial governments.
Furthermore, the IMF stressed the need to accelerate climate-related measures such as green transport, reducing carbon emissions, and improving water management to align Pakistan’s climate goals with energy sector reforms.
