Washington: The International Monetary Fund (IMF) approved nearly $1.2 billion in new financing for Pakistan, giving the country a critical infusion of support as it struggles to maintain macroeconomic stability amid severe flooding, rising inflation, and persistent fiscal pressures.
According to an official release, the IMF Executive Board completed the second review of Pakistan’s Extended Fund Facility (EFF) and the first review of its Resilience and Sustainability Facility (RSF), unlocking “about US$1 billion” under the EFF and “about US$200 million” under the RSF. Total disbursements under the two arrangements now stand at “about $3.3 billion.”
Despite “recent devastating floods,” the Fund said Pakistan’s “strong program implementation” had helped “maintain stability and improve financing and external conditions.” The 37-month EFF, approved in September 2024, aims to entrench stability, rebuild reserves, broaden the tax base, improve competitiveness, reform state-owned enterprises, and restore energy-sector viability.
Fiscal consolidation has been a key anchor. Pakistan recorded a primary surplus of “1.3 percent of GDP” in FY25, while gross reserves climbed to “$14.5 billion at end-FY25, up from $9.4 billion” the previous year. Inflation remains elevated, driven partly by flood-related food price spikes, it said.
Nigel Clarke, IMF Deputy Managing Director and Acting Chair, said Pakistan must maintain “prudent policies” to strengthen stability and support “stronger, private sector-led, and sustainable medium-term growth.”
He called the government’s adherence to its FY2026 primary balance target, even while responding to flood relief, “a strong signal of their commitment to build fiscal policy credibility.”
Clarke said an “appropriately tight monetary policy stance” had been “pivotal in reducing inflation” and should continue. He urged deeper interbank foreign exchange market development, exchange-rate flexibility, and “decisive financial regulation enforcement.”
Energy-sector reforms remain essential, the IMF said, noting that tariff adjustments had helped reduce circular debt but warning that inefficiencies in power and gas systems must still be addressed. Structural reforms — including SOE governance, privatization, and improvements in business climate and economic data — were also flagged as priorities.
The RSF review emphasised Pakistan’s vulnerability to extreme weather. The Fund said the floods highlight the urgency of climate reforms, including better disaster-response coordination, more efficient water use, and improved disclosure of climate-related financial risks.
Pakistan faces ongoing external financing pressures, structural deficits, and energy-sector imbalances, making IMF support a central element of its economic management in recent years.
(IANS)
