ISLAMABAD: The International Monetary Fund (IMF) announced on Wednesday that it has reached a staff-level agreement with Pakistan on the first review of its economic program under the Extended Fund Facility (EFF) and a new arrangement under the Resilience and Sustainability Facility (RSF).
The discussions took place from February 24 to March 14, 2025, in Karachi and Islamabad, and continued virtually thereafter.
The agreement includes a new 28-month arrangement under the RSF, providing Pakistan with total access of approximately $1.3 billion (SDR 1 billion). Subject to IMF Executive Board approval, Pakistan will gain access to about $1.0 billion (SDR 760 million) under the EFF, bringing total disbursements under the program to around $2.0 billion.
In a statement, the IMF noted Pakistan’s significant progress over the past 18 months in restoring macroeconomic stability, despite global challenges. It highlighted improvements in inflation, financial conditions, and external balances. However, the IMF also warned of elevated risks, including potential policy slippages, global financial tightening, and climate-related challenges.
According to the statement, the Pakistani authorities have committed to further strengthening public finances, ensuring price stability, and enhancing fiscal and monetary policies to support private sector-led growth. Key reforms under the RSF-supported program include continued fiscal consolidation, revenue mobilization, structural energy reforms, and climate resilience initiatives.
The authorities reiterated their commitment to the EFF-supported program and plan to supplement their efforts by advancing reforms under the RSF-supported program aiming to address long-standing economic vulnerabilities to climate shocks and build resilience. The authorities’ policy priorities include:
- Continued fiscal consolidation to reduce public debt while creating space for social and development spending and reducing crowding out of private investment. The authorities are on track to achieve an FY25 underlying primary surplus of at least 1.0 percent of GDP and are committed to sustaining consolidation in the FY26 budget. While refraining from increasing current spending beyond that budgeted, the authorities are committed to preserve the generosity of the Benazir Income Support Programme (BISP) unconditional cash transfer program and aim to create savings on energy subsidies and prioritize development spending.
- Making further progress on fiscal structural reforms. The authorities are determined to continue efforts to enhance revenue mobilization, spending efficiency, and transparency, broadening the tax base. Notably, all four provinces have amended their Agriculture Income Tax (AIT) regimes—an important step towards greater tax equity and expanding the tax base—although effective implementation is crucial to the AIT’s success and greater fiscal devolution in FY26. The authorities also remain committed to improving public financial management, ensuring spending transparency through the electronic Pakistan Acquisition and Disposal System (e-PADS), and developing debt management to strengthen sustainability and governance.
- Maintaining appropriately tight monetary policy. Recognizing that the full impact of recent rate cuts is still to be felt, the authorities will continue with an appropriately tight and data-dependent monetary policy to ensure inflation remains anchored within the State Bank of Pakistan’s (SBP) medium-term target range of 5–7 percent. They are committed to preserving a fully functioning foreign exchange market to support exchange rate flexibility while rebuilding FX reserve buffers.
- Continuing fundamental cost-reducing reforms in the energy sector to enhance viability and lower tariffs. The authorities’ timely implementation of electricity and gas tariff adjustments, along with the early impact of reforms, has helped reduce the stock and flow of the sector’s circular debt, and both should remain a priority. It is necessary to accelerate cost-side reforms, including improving distribution efficiencies, integrating captive power into the electricity grid, enhancing the transmission system, privatizing inefficient generation companies, and expanding renewable energy adoption.
- Delivering structural reform agenda to reduce inefficiencies, boost productivity, and support private sector development. The authorities will advance their efforts to fully implement the SOE governance framework across all SOEs while adopting appropriate governance mechanisms and safeguards for the Pakistan Sovereign Wealth Fund (PSWF). They will further strengthen institutional capacity to fight corruption and significantly reduce trade barriers to support inclusive growth and a level playing field for business and investment.
- Scaling up climate reform efforts to reduce vulnerabilities to natural disaster risks and to build climate resilience. Supported by the RSF, the authorities’ program is committed to: (i) strengthening public investment processes across all levels of government to prioritize projects that enhance disaster resilience; (ii) improving the efficiency of scarce water resource usage, including through better pricing mechanisms; (iii) enhancing intergovernmental coordination on disaster financing; (iv) improving information architecture and disclosure of financial and corporate climate-related risks; and (v) promoting green mobility to mitigate significant pollution and adverse health impacts.
“The IMF team is grateful to the Pakistani authorities, private sector, and development partners for their hospitality during the visit to Islamabad and Karachi, and fruitful discussions”.
