Washington, DC: An International Monetary Fund (IMF) team, led by Nathan Porter, held discussions during a February 24-March 14, 2025 mission to Karachi and Islamabad, and virtually thereafter, for the first review of Pakistan’s economic program supported by the Extended Fund Facility (EFF) and on a new arrangement under the IMF’s Resilience and Sustainability Facility (RSF). Mr. Porter issued the following statement at the conclusion of discussions:
“The IMF team has reached a staff-level agreement (SLA) with the Pakistani authorities on the first review of the 37-month Extended Arrangement under the Extended Fund Facility (EFF), and on a new 28-month arrangement under the IMF’s RSF with total access over the 28 months of around $1.3 billion (SDR 1 billion). The staff-level agreement is subject to approval of the IMF’s Executive Board. Upon approval, Pakistan will have access to about US$1.0 billion (SDR 760 million) under the EFF, bringing total disbursements under the program to about US$2.0 billion.
"Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment. While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger. While economic activity is expected to steadily improve, downside risks also remain elevated. Potential macroeconomic policy slippages—driven by pressures to ease policies—along with geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism could undermine the hard-won macroeconomic stability. Additionally, climate-related risks continue to pose a significant challenge for Pakistan, creating a need to build resilience including through adaptation measures.
“In this regard, it is critical to stay the course and entrench the progress achieved over the past one and a half years, building resilience by further strengthening public finances, ensuring price stability, rebuilding external buffers and eliminating distortions in support of stronger, inclusive and sustained private sector-led growth.
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 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”.
