The International Monetary Fund’s Executive Board has approved a fresh $1.1 billion loan tranche for Pakistan after completing the third review of the country’s economic reform program under the Extended Fund Facility.
The IMF also approved around $220 million in climate funding under the Resilience and Sustainability Facility, bringing total disbursements under the two arrangements to about $4.8 billion.
The IMF said Pakistan’s economy is stabilizing despite a difficult global environment and the ongoing Middle East war.
According to the Fund, Pakistan has achieved key economic targets, while policy efforts under the reform program have helped rebuild confidence, strengthen fiscal performance and improve foreign exchange buffers.
The IMF said Pakistan’s current account remained broadly balanced during the first nine months of FY26.
Growth, inflation and reserves outlook
The IMF projected Pakistan’s economic growth rate at 3.6% for fiscal year 2026. However, growth is expected to slow slightly to 3.5% next year.
The government has set a GDP growth target of 4.2% for the current fiscal year.
Average inflation is estimated at 7.2% this year and is projected to rise to 8.4% next year. The IMF report also forecast overall inflation at 11.5% this year.
Unemployment is expected to stand at 6.9% this year before easing to 6.5% next year.
Pakistan’s gross foreign exchange reserves stood at $16 billion at the end of December, compared with $14.5 billion at the end of June 2025. The IMF expects reserves to reach $17.5 billion and continue improving over the medium term.
Fiscal targets and budget outlook
The IMF said Pakistan’s fiscal performance has remained strong, with a primary surplus of 1.6% of GDP expected in FY26. The primary balance is projected at 2.5% this year and likely to ease to 2% next year.
The budget deficit is expected to rise from 3.2% to 3.4%, according to the IMF. The Fund stressed that Pakistan must remain committed to FY26 and FY27 primary balance targets to strengthen fiscal sustainability and policy credibility.
IMF calls for tax, energy and SOE reforms
The IMF urged Pakistan to increase the tax net, improve compliance and continue economic reforms. It also directed the government to keep electricity, gas and petroleum prices in line with costs, while protecting vulnerable consumers through targeted support.
The Fund said reforms in the energy sector must continue to reduce costs, address inefficiencies and improve Pakistan’s competitiveness.
The IMF also demanded faster privatization and reforms of state-owned enterprises, along with steps to improve public service delivery and the business environment.
Spending on health, education and social security
The IMF said Pakistan should increase spending on social protection, education and health. It added that better revenue collection and improved spending efficiency would create room for social assistance, human capital development and productive public investment.
The IMF also called for stronger public financial management and efforts to remove tax policy distortions.
State Bank advised to maintain tight monetary policy
The IMF said the State Bank of Pakistan had taken timely measures to maintain an appropriately tight monetary policy stance. The Fund said the SBP’s policy was aimed at controlling inflation and keeping inflation expectations anchored.
It advised continued monitoring of possible pressure on domestic prices, wages and expectations.
The IMF also said exchange rate flexibility should remain the main shock absorber, especially as Pakistan works to rebuild reserves. It called for further expansion and reforms in the foreign exchange market, including carefully sequenced medium-term FX liberalization.
The IMF also said banks must maintain adequate capital to protect financial stability, while capital shortfalls in microfinance banks should be addressed.
Climate funding and disaster resilience
Pakistan’s 28-month RSF arrangement was approved on May 9, 2025, to help reduce vulnerability to natural disasters and build economic and climate resilience.
The IMF said reforms under the RSF are strengthening natural disaster response, improving disaster financing coordination and making better use of scarce water resources.
The program also supports stronger federal-provincial coordination, improved climate-risk disclosure by banks and companies, and Pakistan’s efforts to meet mitigation commitments.
IMF Deputy Managing Director and Acting Chair Nigel Clarke said Pakistan’s strong implementation of the EFF program had supported macroeconomic stability and helped rebuild fiscal and foreign exchange buffers.
He said GDP growth had accelerated, inflation remained contained and the current account was broadly balanced in the first nine months of FY26.
Clarke warned that the external environment had become more challenging and uncertain since the start of the Middle East war, making strong policies and faster reforms essential.
He said dealing with climate risks is critical for Pakistan’s economy.
According to Clarke, the RSF program is improving Pakistan’s capacity to deal with natural disasters, strengthening financial cooperation and coordination, improving the use of limited water resources, and integrating climate impacts into development planning and budgeting.
He also said work is underway to improve climate data and information systems in Pakistan.
Pakistan must stay on reform path
The IMF said Pakistan will need to continue its economic reform journey to manage future shocks and achieve higher, sustainable medium-term growth.
The Fund emphasized continued anti-corruption reforms, state-owned enterprise restructuring, privatization, energy sector viability, fiscal discipline, climate resilience and stronger institutions.
Sources said Pakistan had also accepted several new conditions set by the IMF. Pakistan has assured the IMF of timely adjustments in electricity and gas prices. The burden of any increase in global oil prices will be passed on to consumers.
Meanwhile, Pakistan has also assured the lender it would continue economic stabilisation measures under the loan programme.
Despite the regional emergency situation, Pakistan has reaffirmed its commitment to meeting IMF targets. The country also pledged to continue a tight monetary policy and reforms in the energy sector.
Assurances were given that expenditure would remain under control to maintain fiscal discipline. Pakistan has also promised reforms in the financial sector and tax system.
Targeted subsidies will be provided to shield low-income groups from inflation. Pakistan further assured the IMF it would meet targets related to climate change measures.
