Islamabad (TDI): Pakistan has secured $1.2 billion in fresh funding after the International Monetary Fund (IMF) approved the country’s second review under its Extended Fund Facility (EFF) and the first review of its Resilience and Sustainability Facility (RSF), the IMF announced on Tuesday.
This funding comes at a time of global uncertainty, marked by fluctuating commodity prices, tight international financial conditions, and repeated climate-related crises, underscoring Pakistan’s commitment to disciplined reforms and prudent resource management.
Officials in Islamabad hailed the IMF approval as a strong endorsement of Pakistan’s reform measures and macroeconomic policies, while stressing that the key challenge lies in translating these commitments into real economic growth.
The IMF approval highlights the Fund’s acknowledgment of Pakistan’s notable progress in stabilizing the economy and restoring confidence amid global challenges.
The board observed that Pakistan achieved a strong fiscal performance, with a primary surplus of 1.3% of GDP in FY25, meeting program targets.
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Gross reserves rose to $14.5 billion at the end of FY25, up from $9.4 billion the previous year, and are expected to continue growing in FY26 and the medium term. While inflation has increased due to flood-related food price shocks, the board expects this rise to be temporary.
The approval allows Islamabad to draw $1 billion under the EFF and $200 million under the RSF, raising total disbursements under both programs to around $3.3 billion. The IMF praised Pakistan for stabilizing its economy despite challenges, including recent devastating floods.
IMF Deputy Managing Director Nigel Clarke highlighted Pakistan’s strong economic performance, noting that real GDP growth is picking up, inflation expectations remain stable, and fiscal and external imbalances are improving.
He emphasized Islamabad’s efforts to achieve its FY26 primary balance target while managing urgent post-flood relief, demonstrating a commitment to sound fiscal management.
Clarke also recommended ongoing tax reforms to simplify and broaden the tax base, enabling more resources for climate resilience measures, social protection, and public investment.
He stressed maintaining a tight monetary policy to keep inflation within the State Bank of Pakistan’s target range while ensuring exchange-rate flexibility and adequate interbank liquidity.
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Energy sector reforms remain a priority to ensure viability and competitiveness. Clarke noted that timely power tariff adjustments have reduced circular debt, but further efforts are needed to lower electricity production and distribution costs and address inefficiencies in both power and gas sectors.
The RSF tranche is intended to support climate adaptation and disaster resilience initiatives, including strengthening disaster response, optimizing water resource use, integrating climate considerations into budgeting, and improving climate-related risk information. The recent floods underscore the urgency of implementing these reforms.
The IMF welcomed Pakistan’s release of the Governance and Corruption Diagnostic Assessment, calling it a significant step toward accelerating governance reforms.
Clarke highlighted the importance of reforms in state-owned enterprises, privatization, improving the business environment, and enhancing the quality of economic data and statistics.
Advancing structural reforms is essential to unlock growth potential, attract private investment, and ensure lasting economic stability.
Pakistan’s reform implementation under the EFF has helped preserve macroeconomic stability despite recent shocks, with a primary surplus of 1.3 percent of GDP and a rebound in gross reserves to $14 billion, according to the IMF.
Minahil Khurshid holds a Master's in Peace and Conflict Studies from NUST. She is passionate about current affairs, public policy, and geopolitics.
