Agreement Paves Way for $4.5 Billion in Total Disbursements
The International Monetary Fund (IMF) announced on Friday it has reached a staff-level agreement (SLA) with Pakistan, concluding the third review of its Extended Fund Facility (EFF) and the second review of its Resilience and Sustainability Facility (RSF). This agreement unlocks an immediate disbursement of approximately $1.2 billion, pending approval by the IMF Executive Board.
Economic Stabilization and External Risks
In a statement, the IMF noted that policies supported by the EFF have continued to strengthen Pakistan’s economy and rebuild market confidence. The Fund highlighted that economic activity has gained momentum, while inflation and the current account have remained contained. However, it warned that the conflict in the Middle East has clouded the economic outlook, raising risks of volatile energy prices, tighter global financial conditions, and higher inflation.
Key Policy Priorities and Reforms
The staff-level agreement outlines several policy priorities for Pakistani authorities, including:
- Maintaining a prudent fiscal stance and broadening the tax base.
- Strengthening expenditure discipline while expanding health, education, and social protection spending.
- Improving federal-provincial burden-sharing.
- Maintaining a tight, data-dependent monetary policy, with readiness to raise interest rates if price pressures intensify.
- Preserving exchange-rate flexibility as the primary shock absorber against external spillovers.
Energy Sector and Structural Reforms
The IMF emphasized the need for sustainability in the energy sector through timely tariff adjustments to ensure cost recovery and avoid untargeted subsidies. It also pointed to critical structural reforms aimed at reducing circular debt, improving transmission and distribution, privatising inefficient generation companies, and facilitating a shift toward renewable energy.
Social Protection and Broader Goals
The statement reaffirmed a commitment to strengthening the Benazir Income Support Programme (BISP) through inflation-adjusted cash transfers to protect vulnerable households. Broader reform goals include state-owned enterprise (SOE) reform, privatisation, anti-corruption efforts, and climate resilience measures under the RSF.
Path Forward
Upon approval by the IMF Board, Pakistan will access about $1.0 billion under the EFF and $210 million under the RSF. This would bring total disbursements under the two arrangements to approximately $4.5 billion, providing critical support for the country’s economic stabilization program.
