Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement that could unlock around $1.2 billion in financing for the country, subject to approval by the IMF Executive Board.
The agreement covers the fourth review of Pakistan’s 37-month Extended Fund Facility (EFF) and the third review of its 28-month Resilience and Sustainability Facility (RSF).
If approved by the IMF board, Pakistan would receive around $1 billion under the EFF and approximately $210 million under the RSF. The latest disbursement would bring total financing released under the two arrangements to around $5.7 billion.
The IMF team, led by Mission Chief Iva Petrova, held discussions with Pakistani authorities in Karachi and Islamabad from September 23 to October 7.
Fuel subsidy scheme to be phased out
A key commitment under the agreement is the prompt phase-out of Pakistan’s fuel support scheme.
Petrova said the subsidy should be withdrawn because of its high fiscal cost and broad targeting. She added that any future fuel support, if required because of unexpectedly high oil prices, should be limited, temporary and targeted through existing social assistance programmes.
The government had introduced a three-month fuel support programme with a Rs75 billion allocation to provide relief to eligible motorcycle and small-car owners.
The IMF had previously raised concerns over the cost and broad targeting of the scheme.
Health and education spending
The IMF also welcomed Pakistan’s efforts to increase spending on health and education.
Petrova said the government remained committed to raising combined spending on the two sectors to 2.8% of GDP in FY27, while monitoring implementation and reallocating resources where necessary.
According to the IMF, Pakistan had increased health and education spending from 2.2% of GDP in FY24 to 2.5% in FY26.
The Fund also highlighted plans to increase targeted cash-transfer benefits and improve beneficiary coverage and payment systems to strengthen support for vulnerable households.
Economic stability maintained despite external pressures
The IMF said Pakistan had successfully navigated the economic impact of the Middle East conflict, with strong policies helping preserve macroeconomic stability.
Real GDP growth reached 4% during the first three quarters of FY26, while full-year growth was estimated at 3.6%.
Headline inflation moderated to around 10.3% in September after peaking in May, while core inflation remained contained.
The current account was broadly balanced in FY26, supported by strong remittance inflows, while gross foreign exchange reserves rose to more than $21 billion by the end of September.
The IMF, however, warned that risks remained high because of geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions.
IMF seeks fiscal and structural reforms
Pakistan has committed to achieving a primary budget surplus of 2% of GDP during the current fiscal year through tax policy and revenue administration measures.
The IMF said reforms including risk-based audits, digital invoicing and the use of third-party data would help strengthen revenue collection. It also called for a medium-term tax reform strategy aimed at making the tax system simpler and fairer while protecting government revenues.
The Fund also stressed the importance of stronger public financial management, improved procurement and cash management, and measures to reduce debt rollover risks.
Energy sector and state-owned companies
The IMF again called for timely tariff adjustments and cost-reducing reforms to prevent a renewed buildup of circular debt.
It also urged Pakistan to improve the efficiency of the power sector, expand private participation in distribution, increase competition in electricity markets, maintain cost recovery in the gas sector and reduce unaccounted-for gas losses.
The Fund further emphasised reforms to improve governance and transparency in state-owned enterprises, advance privatisation and strengthen competition.
According to the IMF, these reforms, alongside improvements in taxation, human capital, energy efficiency and financial markets, are important for increasing productivity, employment, private investment and exports.
Finance ministry welcomes conclusion of talks
The Ministry of Finance said IMF Mission Chief Iva Petrova held a wrap-up session with Finance Minister Muhammad Aurangzeb at the Q Block of the Pak Secretariat in Islamabad following the conclusion of the latest reviews.
Finance Secretary Imdad Ullah Bosal and IMF Resident Representative Mahir Binici also attended the meeting.
The staff-level agreement still requires approval from the IMF Executive Board before the funds can be released.
