IMF Reaches Staff-Level Agreement With Pakistan on 4th EFF Review, Unlocking $1.2 Billion Loan

The International Monetary Fund (IMF) and Pakistan have reached a staff-level agreement on the fourth review of Pakistan's Extended Fund Facility (EFF). This agreement could release approximately $1.2 billion, contingent on approval by the IMF Executive Board. The deal also paves the way for around $210 million under the Resilience and Sustainability Facility. The talks, led by Iva Petrova, took place from September 23 to October 7, 2026, in Karachi and Islamabad, coinciding with the 2026 Article IV consultation.

IMF officials stated that Pakistan's economy has weathered challenges, such as the Middle East conflict and energy pricing fluctuations, demonstrating macroeconomic stability. The IMF forecasts real GDP growth of 3.6 percent for fiscal 2026, with growth peaking at 4 percent in the first three quarters before slowing due to rising energy costs and supply disruptions.

Inflation has eased to around 10.3 percent in September from a May peak, while core inflation remains contained. The current account is broadly balanced, partly due to strong remittances and rising gross reserves to about $21.5 billion.

The IMF emphasized the importance of adhering to the FY27 budget, which includes an underlying primary surplus of 2.0 percent of GDP. They also urged Pakistan to implement revenue administration reforms, such as risk-based audits, digital invoicing, and third-party data use. Additionally, the IMF recommended a medium-term tax reform strategy to create a fairer, simpler, and more growth-friendly tax system.

Health and education expenditures have increased from 2.2 percent of GDP in FY24 to 2.5 percent in FY26, with the government committed to raising them to 2.8 percent in FY27. The IMF urged the government to promptly phase out the fuel support scheme, citing its high cost and broad targeting.

Policy recommendations from the IMF include maintaining tight policy conditions, ensuring appropriate inflation control, and supporting exchange rate flexibility as a shock absorber. They also called for further reserve accumulation and gradual foreign exchange regime liberalization. In the energy sector, the IMF advocated for timely tariff adjustments, cost-reducing reforms, and increased private participation in distribution and transport decarbonization to address circular debt and decarbonize the energy system. The staff-level agreement is pending approval by the IMF Executive Board.