WASHINGTON: The International Monetary Fund (IMF) on Monday approved a fresh tranche of about $1.2 billion for Pakistan under its Extended Fund Facility (EFF) and the climate-focused Resilience and Sustainability Facility (RSF), following a meeting of its Executive Board in Washington.
In its announcement, the Board noted that Pakistan’s “strong programme implementation”, despite the widespread damage caused by recent floods, had helped maintain economic stability and improve external financing conditions. It emphasised that Pakistan’s policy priorities remain centred on safeguarding macroeconomic stability, strengthening public finances, boosting competitiveness and productivity, deepening social protection and human capital, reforming state-owned enterprises (SOEs) and improving the delivery of public services and energy sector reforms.
The IMF said the decision reflects recognition of Pakistan’s progress in consolidating its economy under difficult global conditions. Fiscal performance was described as strong, with Pakistan achieving a 1.3pc primary surplus in FY25 – in line with programme targets. Gross foreign exchange reserves reached $14.5bn by end-FY25, up significantly from $9.4bn a year earlier, and are projected to continue rising. Inflation has risen due to flood-driven food price spikes but is expected to moderate.
IMF Deputy Managing Director and Acting Chair Nigel Clarke urged Pakistan to uphold prudent policies and accelerate structural reforms to sustain macroeconomic stability and foster private-sector-led growth. He highlighted the need to raise revenues through tax base broadening and policy simplification to build fiscal space for climate resilience, social protection and human development.
Clarke stressed that energy sector reforms remain essential to improving competitiveness and preventing the re-accumulation of circular debt. Timely tariff adjustments have helped contain the debt, but deeper reforms are required to reduce production and distribution costs and address inefficiencies in both the power and gas sectors.
The RSF tranche will support Pakistan’s climate adaptation agenda, including efforts to strengthen natural disaster response, improve water resource management, integrate climate criteria into public investment decisions, and enhance the quality of climate-related financial information. The IMF said the recent floods underscore the urgency of climate-related reforms.
The Fund also welcomed the government’s publication of the Governance and Corruption Diagnostic Assessment, calling it a positive step toward accelerating governance reforms. Clarke urged further action on SOE governance and privatisation, improving the business environment and upgrading economic data systems.
With the latest tranche, Pakistan has now received about $3.3bn under the EFF and RSF combined. The inflows are expected to support macroeconomic stabilisation, debt servicing, import cover and climate-resilient development initiatives, including infrastructure rehabilitation and water management.
Officials in Islamabad hailed the approval as an endorsement of Pakistan’s reform trajectory, though analysts cautioned that sustained discipline in fiscal management, energy sector reforms and climate adaptation will be vital to turning stabilisation into long-term recovery.
The IMF’s decision comes amid a tough global environment marked by volatile commodity markets, tight financial conditions and recurring climate shocks. Observers view the approval not only as a financial cushion but also as a signal that continued reform and effective use of funds will be critical for strengthening Pakistan’s economic resilience.
Story by Anwar Iqbal
