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• Warns conflict spillovers could shock energy prices and trade, tighten financing
• Calls for faster tax reforms, broader revenue base; urges tight monetary policy to contain inflation
• Says exchange rate flexibility must remain key economic shock absorber
WASHINGTON The International Monetary Fund has approved a new disbursement for Pakistan of about $1.3 billion, acknowledging the nation’s resilience in maintaining economic stability while warning that continued reforms are essential to manage growing risks from the war in the Middle East.
The assessment and financing came on Friday as the IMF Executive Board completed its third review of Pakistan’s economic reform programme under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF).
The decision paves the way for disbursements of about $1.1bn from the EFF and $220m from the RSF, bringing total payouts under the two arrangements to roughly $4.8bn.
While the funding provides crucial short-term support, the IMF’s statement emphasised an evolving and uncertain outlook, cautioning that Pakistan’s recent gains are exposed to heightened global volatility, particularly spillovers from the conflict in the Middle East.
“The authorities’ strong implementation, despite the Middle East war, has maintained economic stability and improved financing and external conditions,” the Fund noted in its statement.
However, it cautioned that “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.
The framing reflects a core concern that Pakistan’s stabilisation is fragile and could be tested by new external shocks transmitted through volatile energy markets, trade disruptions and tighter global financial conditions. For an economy heavily dependent on imports and external financing, such pressures can quickly threaten inflation, foreign exchange reserves, and fiscal balances.
IMF Deputy Managing Director and Acting Chair Nigel Clarke reinforced this cautionary tone, stressing the need for both discipline and accelerated reforms.
“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,” he said.
The reference to “further shocks” underscores the Fund’s view that the current volatility is part of a persistent global shift, requiring a policy framework built for resilience, not just stability.
The Fund said policy priorities must focus on maintaining macroeconomic stability while advancing structural reforms to strengthen public finances, improve governance and boost productivity.
This includes broadening the tax base, enhancing revenue collection, and improving the management of public funds. It also called for continued progress in reforming state-owned enterprises, improving the viability of the energy sector and strengthening social safety nets.
On the external front, the IMF stressed that exchange rate flexibility should remain the main shock absorber as Pakistan continues to rebuild its foreign exchange reserves. It urged the central bank to maintain a tight monetary policy to anchor inflation expectations and prevent second-round price effects.
Energy sector reforms featured prominently among the IMF’s concerns. It said Pakistan must ensure domestic fuel, electricity, and gas prices stay aligned with costs to prevent the return of fiscal pressures, while protecting vulnerable households with targeted support rather than broad subsidies.
The IMF noted that distortions in the energy sector continue to weigh on the country’s productivity and discourage private investment.Beyond short-term stabilisation, the Fund underscored that sustainable growth depends on a deeper structural transformation.
It urged Pakistan to advance governance reforms, strengthen anti-corruption institutions, complete the privatisation of state-owned enterprises and remove regulatory barriers to private sector activity.
A significant portion of the IMF’s concern centred on Pakistan’s vulnerability to the Middle East conflict, warning that rising geopolitical uncertainty could impact energy prices, trade flows, and global financial conditions, with direct implications for Pakistan’s stability.
The reforms supported by the RSF, the IMF added, are intended to address longer-term structural issues, particularly those related to climate risks.
These include strengthening water resource management, improving disaster response, and integrating climate considerations into public investment.
Overall, the IMF’s message was one of guarded recognition. While acknowledging Pakistan’s progress, it repeatedly warned that stability is conditional and the external environment is becoming more uncertain, requiring stronger discipline and faster reforms to sustain the country’s hard-won gains.
Published in Dawn, May 10th, 2026
