The International Monetary Fund (IMF) and Pakistani authorities have reached a staff-level agreement on the first review of Pakistan’s Extended Fund Facility (EFF) and a new arrangement under the Resilience and Sustainability Facility (RSF). The agreement, announced after discussions held between February 24 and March 14, 2025, in Karachi and Islamabad, is subject to approval by the IMF’s Executive Board.

Under the agreement, Pakistan will gain access to approximately $1 billion (SDR 760 million) under the EFF, bringing total disbursements under the program to $2 billion. Additionally, the new 28-month RSF arrangement will provide access to $1.3 billion (SDR 1 billion) to support Pakistan’s climate resilience and sustainability efforts.

“The strong implementation of the EFF-supported program continues, and the authorities remain committed to advancing a gradual fiscal consolidation to sustainably reduce public debt, maintaining a sufficiently tight monetary policy to keep inflation low, accelerating cost-reducing energy sector reforms to enhance its viability, and implementing Pakistan’s reform agenda to accelerate growth, while strengthening social protection and health and education spending,” stated the IMF.

It further added that the RSF will support Pakistan’s efforts in building resilience to natural disasters, enhancing budget and investment planning to promote climate adaptation, improving the efficient and productive use of water, strengthening the climate information architecture to improve disclosure of climate risks, and aligning energy sector reforms with mitigation targets.

Progress on Economic Stability

Despite global challenges, the IMF highlighted Pakistan’s significant progress in restoring macroeconomic stability over the past 18 months. Inflation has declined to its lowest level since 2015, financial conditions have improved, and external balances have strengthened. However, the IMF cautioned that downside risks remain, including potential policy slippages, geopolitical shocks, and climate-related challenges.

The IMF emphasized the need for Pakistan to sustain its progress by strengthening public finances, ensuring price stability, rebuilding foreign exchange reserves, and eliminating economic distortions to support private sector-led growth.

The Resilience and Sustainability Facility (RSF) provides affordable long-term financing to countries undertaking reforms to reduce risks to prospective balance of payments stability, including those related to climate change and pandemic preparedness.

Key Policy Commitments

The Pakistani authorities have reiterated their commitment to the EFF-supported program and outlined key policy priorities under the RSF-supported program to address long-standing vulnerabilities and build resilience to climate shocks. These include:

Fiscal Consolidation

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.

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.

Monetary Policy

The State Bank of Pakistan (SBP) will maintain a tight, data-driven monetary policy to anchor inflation within the medium-term target range of 5–7 percent. The authorities are committed to exchange rate flexibility and rebuilding foreign exchange reserves.

Energy Sector Reforms

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.

The government will accelerate cost-reducing reforms in the energy sector, including improving distribution efficiencies, integrating captive power into the grid, privatizing inefficient generation companies, and expanding renewable energy adoption.

Structural Reform

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.

Climate Resilience

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:

• Strengthening public investment processes across all levels of government to prioritize projects that enhance disaster resilience;
• Improving the efficiency of scarce water resource usage, including through better pricing mechanisms;
• Enhancing intergovernmental coordination on disaster financing;
• Improving information architecture and disclosure of financial and corporate climate-related risks;
• Promoting green mobility to mitigate significant pollution and adverse health impacts.

The IMF team, led by Nathan Porter, expressed gratitude to the Pakistani authorities, private sector, and development partners for their hospitality and constructive discussions during the mission. The staff-level agreement is expected to unlock critical funding to support Pakistan’s economic stability and climate resilience efforts, while addressing long-standing structural challenges.