The Fund supports fuel price policy and warns that the conflict in the Middle East may put pressure on inflation and growth prospects
IMF opposes 1tr energy subsidy. Design: Mohsin Alam
The International Monetary Fund (IMF) on Saturday said it had reached a staff level agreement (SLA) with Pakistan for the disbursement of around $1.2 billion, following the successful completion of the third review under the country’s Extended Fund Facility (SAF) and the second review under the Resilience and Sustainability Fund (RSF).
The Fund also tacitly backed Islamabad’s fuel pricing policy amid the ongoing Middle East crisis.
According to the IMF, the implementation of Pakistan’s program under the SAF has remained largely aligned with the authorities’ objectives of strengthening public finances, sustainably keeping inflation within the State Bank of Pakistan’s target range, improving the viability of the energy sector, deepening structural reforms, and expanding social protection while rebuilding spending on health and education.
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IMF reaches staff-level agreement on third review of 37-month extended arrangement under the Extended Fund Facility (EFF) and second review of 28-month arrangement under the Resilience and Sustainability Facility (RSF) – Pakistan
— Ministry of Finance, Government of Pakistan (@Financegovpk) March 28, 2026
Under the $7 billion program, the Washington-based lender is urging authorities in Islamabad to maintain tight, data-driven monetary policy to anchor inflation expectations and strengthen external reserves.
Pakistan’s central bank kept its key policy rate unchanged at 10.5% this month, pausing its rate cuts as rising global energy prices and regional tensions pose new inflation risks for the import-dependent economy.
The IMF added that Pakistan’s climate reform agenda, supported by RSF, is moving forward, with authorities committed to policies aimed at improving resilience and reducing vulnerabilities to climate-related risks.
Talks between IMF officials and Pakistani authorities took place in Karachi and Islamabad from February 25 to March 2 and continued virtually thereafter.
IMF Mission Chief Iva Petrova said that subject to approval by the IMF Executive Board, Pakistan will get access to around $1 billion (SDR 760 million) under the SAF and around $210 million (SDR 154 million) under the RSF, which would bring total disbursements under the two agreements to about $4.5 billion.
“With the support of the SAF, ongoing policies have continued to strengthen the economy and rebuild market confidence. Following the recovery in FY25, economic activity gained further momentum in the first part of the current fiscal year. Inflation and the current account balance remained contained, and external reserves continued to strengthen,” the IMF said in a statement.
“The conflict in the Middle East, however, casts a cloud over the outlook, as volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weighing on growth and the current account,” he added.
The Fund said Pakistani authorities remained committed to sound macroeconomic policies to preserve recent gains in stabilization while accelerating reforms and strengthening social protection to shield vulnerable groups from energy price volatility.
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The IMF outlined several policy priorities, starting with maintaining a prudent fiscal stance. The authorities aim to achieve a primary budget surplus of 1.6% of GDP in FY26 and an underlying primary balance of 2% of GDP in FY27 through tax base expansion, spending discipline and better federal-provincial burden sharing, while increasing spending on health, education and social protection.
The statement said fiscal structural reforms remain critical and noted that revenue mobilization efforts are already producing results under the Federal Board of Revenue’s transformation plan. Measures include strengthening taxpayer audits, expanding digital billing and production monitoring, and improving internal governance.
The newly created Office of Tax Policy is developing a medium-term tax reform strategy aimed at ensuring revenue neutrality and policy stability, while broader efforts are underway to strengthen public financial management and fiscal coordination between the federal and provincial governments.
On social protection, the IMF said authorities are improving targeted support for vulnerable households through the Benazir Income Support Program (BISP), including inflation-adjusted cash transfers, expanded coverage and improved payment systems.
The Fund added that federal and provincial governments remain committed to increasing spending on health and education to support human capital development and inclusive growth.
On monetary policy, the IMF said the State Bank of Pakistan remains prepared to raise interest rates if inflationary pressures intensify or expectations rise due to global volatility in food and fuel prices.
Exchange rate flexibility should continue to act as the main buffer against external pressures, including spillovers from the Middle East conflict, while ensuring that banks can continue to finance imports and external payments amid potential balance of payments tensions.
The IMF emphasized the importance of restoring the viability of the energy sector and preventing a recurrence of circular debt. He said sustainability depends on timely tariff adjustments to ensure cost recovery and warned against energy price subsidies due to their fiscal costs and distortionary effects.
Authorities also plan structural improvements, including upgrading transmission and distribution systems, privatizing inefficient generation companies, transitioning to a competitive electricity market, expanding renewable energy, and aligning capacity with demand while maintaining grid stability.
The Fund said Pakistan is pushing for broader structural reforms aimed at strengthening governance, reducing market distortions, easing regulatory burdens, boosting productivity and supporting private sector-led growth.
State-owned enterprise reforms and the privatization agenda remain critical to reducing the state’s footprint and improving service delivery, along with efforts to limit government intervention in commodity markets and encourage private sector initiatives. The authorities are also strengthening institutional capacity and intensifying anti-corruption measures to promote inclusive growth and a level playing field for investment.
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On climate policy, the IMF said that reforms supported under the RSF framework – including green mobility initiatives, decarbonization of transport, improved climate information systems, and better management of climate-related financial risks – are helping to build resilience.
Other reforms will focus on the resilience of water systems, prioritizing climate-related spending, establishing a coordinated disaster risk financing framework, and aligning energy reforms with national mitigation goals.
“The IMF team thanks the Pakistani authorities, the private sector and development partners for their hospitality during the visit to Islamabad and Karachi, and their fruitful discussions,” the statement concluded.
