WASHINGTON: The International Monetary Fund’s (IMF) Executive Board on Friday approved the latest review of Pakistan’s reform programme, paving the way for the release of $1.32 billion in financing under the ongoing arrangements.
In Islamabad, Finance Minister Muhammad Aurangzeb also confirmed the approval, saying the decision reflects Pakistan’s continued progress on difficult but necessary economic reforms.
The approval was given at a meeting of the IMF Executive Board in Washington, DC, reflecting its continued support for Pakistan’s ongoing economic reform programme.
The approval allows Pakistan to draw about $1.1 billion under the EFF and about $220 million under the RSF, bringing total disbursements under the two arrangements to roughly $4.8 billion.
The IMF said the approval comes after Pakistan successfully met key structural benchmarks, including tax policy measures and adjustments in energy pricing, aimed at strengthening fiscal discipline and improving macroeconomic stability.
In its statement, the IMF said Pakistan’s policy implementation under the programme had remained strong and had helped preserve stability despite a more uncertain global environment.
“Pakistan’s strong programme implementation under the EFF arrangement has continued, which has supported macroeconomic stability and the rebuilding of fiscal and foreign exchange buffers,” the Fund said.
At the same time, the IMF said external conditions had become more difficult due to geopolitical tensions.
“The shocks emanating from the Middle East war underline the continued importance of maintaining strong policies to continue building resilience and of moving ahead with structural reforms to achieve sustainable long-term growth,” it added.
The Fund said Pakistan’s economic performance had shown improvement under the programme. It noted that GDP growth had accelerated, inflation had remained contained overall despite recent pressures, and the current account had been broadly balanced in the first nine months of FY26.
Inflation, however, had risen due to the pass-through of higher global commodity prices, particularly into domestic energy tariffs. The IMF noted that this reflected necessary adjustments in administered prices aimed at restoring energy-sector viability.
Foreign exchange reserves also improved during the review period, rising to $16 billion at end-December 2025, compared with $14.5 billion at end-June 2025. The Fund said reserves were expected to continue rebuilding over the medium term, supported by programme financing and policy discipline.
Following the Executive Board discussion, IMF Deputy Managing Director and Acting Chair Nigel Clarke said Pakistan needed to maintain tight macroeconomic policies while accelerating reforms to withstand external shocks and sustain growth.
“Amid a more challenging and highly uncertain external environment since the onset of the war in the Middle East, Pakistan needs to maintain strong macroeconomic policies while accelerating reform efforts, which are critical to managing further shocks and fostering higher sustainable medium-term growth,” Clarke said.
He added that continued programme implementation had supported stability. “Pakistan’s strong programme implementation under the EFF arrangement has continued, which has supported macroeconomic stability and the rebuilding of fiscal and foreign exchange buffers,” he said.
The IMF emphasised that fiscal policy should remain focused on gradual consolidation. It said this approach would strengthen resilience and credibility while helping reduce vulnerabilities. At the same time, it stressed that fiscal adjustment should be supported by stronger revenue mobilisation, including broadening the tax base and improving compliance.
“Gradual fiscal consolidation remains appropriate to strengthen resilience and should be supported by continued efforts to boost revenue mobilisation— through broadening the tax net and improving compliance — and strengthen spending efficiency and public financial management,” Clarke said.
The Fund said improved fiscal discipline would also create space for higher social spending and investment in human capital. It specifically highlighted the importance of maintaining and expanding social assistance programmes while increasing productive public investment and addressing distortions in tax policy.
On monetary policy, the IMF said the State Bank of Pakistan had acted proactively to maintain a tight stance aimed at anchoring inflation expectations. It urged continued vigilance against second-round effects on prices, wages, and expectations.
The IMF also reiterated that exchange-rate flexibility should remain the primary shock absorber for the economy as Pakistan rebuilds reserves. It encouraged continued development of the foreign exchange market and supported a carefully sequenced medium-term liberalisation of FX regulations.
“Exchange rate flexibility should be the main shock absorber, particularly given the need to continue rebuilding reserves,” Clarke said.
The Fund also highlighted risks in the financial sector. It called for continued efforts to ensure that banks remain adequately capitalised and urged authorities to address capital shortfalls in microfinance institutions, while maintaining broader financial stability.
Energy sector reforms remained a central pillar of the programme. The IMF said recent improvements in the sector needed to be sustained through cost-reflective pricing of electricity, gas, and fuel, alongside targeted support for vulnerable consumers.
“In an environment of high and volatile commodity prices, recent improvements in energy sector finances need to be sustained by keeping domestic fuel, electricity, and gas prices in line with costs, while protecting the most vulnerable consumers with targeted support,” Clarke said.
The Fund also stressed that continued reforms were essential to reduce inefficiencies, lower costs, and improve competitiveness. Energy sector reforms were also linked to reducing fiscal pressures and containing circular debt accumulation.
On governance and structural reforms, the IMF urged Pakistan to continue implementing economic governance reforms aimed at strengthening anti-corruption institutions. It also called for progress in completing state-owned enterprise restructuring and privatisation, and for improvements in the business environment through regulatory simplification and removal of distortions.
“Efforts should continue to deliver on the Economic Governance Reform actions aimed at bolstering anti-corruption institutions,” Clarke said. “Other priorities include completing SOE reforms and privatisation, and enhancing the business environment by eliminating distortions and unnecessary regulations.”
According to programme details, Pakistan’s reform path going forward will emphasise sustaining a primary budget surplus of around 2 per cent of GDP, broadening the tax base, and improving compliance in previously under-taxed sectors, including retail and agriculture.
Authorities are also expected to pursue additional revenue measures to support a tax-to-GDP increase over the medium term.
Energy sector reforms remain central to the IMF framework, with commitments to regular and predictable tariff adjustments in electricity and gas to reduce circular debt and improve financial viability in the sector.
The programme also envisages continued restructuring and privatisation efforts involving selected state-owned enterprises, aimed at reducing fiscal burdens and improving efficiency.
Officials said the latest review is expected to help support Pakistan’s external position, with inflows contributing to a further strengthening of foreign exchange reserves in the coming weeks.
An IMF mission is scheduled to visit Islamabad on May 15 to engage with authorities on the next federal budget framework and review progress on structural reforms.
Pakistan is currently under a $7 billion, 37-month IMF programme, aimed at stabilising the economy through fiscal discipline, structural reforms, and measures to support long-term growth.
Analysts say the approval provides near-term stability for financial markets while reinforcing the government’s commitment to its reform agenda under the multi-year programme, which remains focused on long-term fiscal and external sustainability.
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