Staff-level agreement with IMF unlocks $1.2bn
• Fund praises nation’s progress on macro stability, market confidence
• Floods pose challenges; FY26 GDP growth projected at 3.25-3.5pc
• Aurangzeb envisions Pakistan’s ‘East Asia moment’; says country moving away from protectionism to foster competitive industries
WASHINGTON: Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on the second review of the country’s 37-month Extended Fund Facility (EFF) and the first review of the 28-month Resilience and Sustainability Facility (RSF).
The agreement, pending approval by the IMF Executive Board, is set to unlock around $1.2 billion in financial assistance, comprising $1bn under the EFF and $200 million under the RSF, bringing total disbursements under the two arrangements to about $3.3bn.
The IMF mission, led by Iva Petrova, conducted discussions from Sept 24 to Oct 8 in Karachi, Islamabad and Washington, DC.
At the conclusion of the discussions, Ms Petrova issued the following statement: “The IMF team has reached a staff-level agreement with the Pakistani authorities on the second review of the 37-month Extended Arrangement under the EFF and the first review of the 28-month arrangement under the RSF.”
The IMF noted that Pakistan’s economic programme, supported by the EFF, is entrenching macroeconomic stability and rebuilding market confidence.
The recovery remains on track, with the FY25 current account recording a surplus — the first in 14 years. The fiscal primary balance has surpassed programme targets, inflation remains contained, external buffers are strengthening and financial conditions have improved as sovereign spreads have narrowed significantly.
However, Pakistan continues to face challenges from recent floods, which affected nearly 7m people, caused over 1,000 deaths and inflicted severe damage on housing, infrastructure and agricultural land. The IMF projects FY26 GDP growth to be 3.25 to 3.5 per cent, reflecting the adverse impact on agriculture and infrastructure.
Policy priorities
Finance Minister Muhammad Aurangzeb reaffirmed the country’s commitment to the IMF-supported programmes, stating that the mission was on the ground for a couple of weeks and “we engaged in very constructive discussions with them on the benchmarks. Follow-up discussions have continued”.
Under the agreement, Pakistan remains committed to meeting the FY26 budget primary surplus of 1.6pc of GDP, through sustained efforts to mobilise revenue via tax policy and compliance measures. Authorities have also reallocated provincial and federal budgets to provide urgent flood relief in affected areas.
The Benazir Income Support Programme (BISP) continues to be a central pillar of social protection. Officials plan to enhance its generosity, coverage and administrative capacity, while also scaling up health and education spending at the federal and provincial levels.
Similarly, the State Bank of Pakistan (SBP) remains committed to a prudent, data-dependent monetary policy. Inflation is expected to remain within the target range of 5-7pc, and the SBP stands ready to adjust its policy stance if price pressures intensify or expectations become unanchored.
As for energy sector reforms, authorities continue to work on preventing the accumulation of circular debt through timely tariff adjustments, upgrading transmission systems, privatising inefficient generation companies and transitioning to a competitive electricity market.
Under structural reforms for productivity, Pakistan is advancing reforms to boost productivity, improve governance and enhance the business environment for private sector development. Plans also include reducing government intervention in commodity markets and strengthening international trade through a new national tariff policy.
Climate resilience, sustainability
The IMF highlighted Pakistan’s focus on climate resilience under the RSF. “Policies supported by the RSF and aligned with national commitments are helping to strengthen resilience, including recently implemented reforms to promote green mobility and transport decarbonisation,” Ms Petrova said.
Future plans include strengthening the climate information architecture, improving water system resilience, establishing coordinated disaster risk financing and aligning energy sector reforms with national mitigation commitments.
“The IMF team wants to express its sympathy to those affected by the recent floods, and is grateful to the Pakistani authorities, private sector and development partners for many fruitful discussions and their hospitality throughout this mission,” Ms Petrova said.
‘East Asia moment’
Meanwhile, Finance Minister Aurangzeb said the country’s recent economic progress and reforms could mark “an East Asia moment” for Pakistan, as the government moves towards liberalising the economy and sustaining macroeconomic stability.
In a media interview following the staff-level agreement, Mr Aurangzeb commended the World Bank Group for supporting Pakistan’s reform efforts and reaffirmed the government’s commitment to sustaining the implementation of the reforms recommended by the international lenders. These measures, he said, would put the country on a “sustainable, outward-looking growth path.”
Speaking to the American news channel CNBC, the finance minister noted that Pakistan’s economic performance has been recognised by all three major global rating agencies, which have upgraded the country’s outlook in recent months. “This validates Pakistan’s improving economic trajectory and reform agenda,” he said.
Mr Aurangzeb said the government believes Pakistan can experience an “East Asia moment” — a period of accelerated growth like the economic transformation seen in East Asian economies through liberalisation and export-led policies.
He recalled that Pakistan began implementing a series of tough economic reforms after finding itself on the verge of default in mid-2023. “Our policy of trade and economic liberalisation, together with the ongoing reform momentum, can set Pakistan firmly on a sustainable growth path,” he added.
Commenting on the evolving global trade dynamics, the minister said Pakistan’s economic focus was shifting away from protectionism. “We cannot continue to shield industries which have received protection for the longest time,” he said. “If Pakistan has to grow, it has to have industries which are competitive and can export.”
Mr Aurangzeb stressed that macroeconomic stability and structural reforms must advance together, pointing to progress in taxation, energy, privatisation of state-owned enterprises, and public finance management as key pillars of the government’s reform strategy.
Published in Dawn, October 16th, 2025