IMF board clears $1.2bn for Pakistan after fresh reform assurances

The Executive Board of the International Monetary Fund (IMF) on Friday approved the release of $1.2 billion to Pakistan after the government committed to additional reform measures and assured the Fund it would maintain previously agreed fiscal and monetary targets despite regional and domestic economic pressures.

The approval includes $1 billion under the Extended Fund Facility (EFF) for balance of payments support and $200 million under the Resilience and Sustainability Facility (RSF) intended for budgetary support, according to government officials.

The fresh disbursement, expected early next week, will raise the State Bank of Pakistan’s foreign exchange reserves above $17 billion.

With the latest tranche, Pakistan has so far received $4.5 billion under two IMF financing arrangements totaling $8.4 billion, while access remains available to additional funding under both programmes.

Officials said Pakistan assured the IMF it would stay committed to the stabilization path agreed before the Middle East conflict and continue pursuing strict fiscal and monetary policies despite criticism over rising unemployment, poverty and income inequality.

Under the commitments, the government agreed to achieve a Rs3.4 trillion primary budget surplus target for the current fiscal year and a Rs2.84 trillion surplus target, equivalent to 2 per cent of GDP, for fiscal year 2026-27.

The authorities also committed to preparing the upcoming federal budget in consultation with the IMF to ensure compliance with programme targets and maintain a fiscally restrictive policy stance.

As part of the latest review, Pakistan accepted nearly a dozen additional conditions tied to governance, taxation, energy pricing and investment policies.

These include amendments to laws governing Special Economic Zones and Special Technology Zones to gradually phase out existing tax incentives and shift toward cost-based incentives by June 2027.

The government also committed to withdrawing powers of various approval authorities to grant tax incentives and to prohibit Export Processing Zones from selling goods in the domestic market from September this year.

The IMF board additionally approved modification of a performance criterion related to the State Bank’s net international reserves and introduced new targets for end-December 2026 and end-June 2027.

According to officials, Pakistan met all quantitative performance criteria for December 2025 and exceeded the target for net international reserves while successfully achieving the required primary fiscal balance.

However, the Federal Board of Revenue missed targets related to overall tax collection and retailer income tax receipts. To compensate for the shortfall, the government increased petroleum levy rates and assured the IMF it would intensify revenue administration reforms.

The government also met four structural benchmarks covering governance reforms, social protection measures, gas sector sustainability and special technology zones.

Under the climate financing programme, Pakistan adopted a green taxonomy framework and issued guidelines for management and disclosure of climate-related financial risks.

Finance Minister Muhammad Aurangzeb reiterated the government’s commitment to prudent macroeconomic management and structural reforms aimed at ensuring long-term sustainable and inclusive growth.

Officials added that Pakistan also assured the IMF it would continue periodic electricity and gas tariff adjustments to maintain cost recovery while protecting vulnerable consumers through targeted support mechanisms.