What IMF’s $1.2b funding means for Pakistan?

Dubai: The International Monetary Fund (IMF) reached a staff-level agreement with Pakistan on October 7 that clears about $1.21 billion (Dh4.44 billion) in new funding. The deal covers the fourth review of the Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF). The IMF Executive Board must still approve it. 

An IMF team led by Iva Petrova held talks in Karachi and Islamabad from September 23 to October 7. The mission also concluded the 2026 Article IV consultation. 

The move makes way for Pakistan to receive about $1 billion or Dh3.67 billion under the EFF and about $210 million (Dh771 million) under the RSF. Total disbursements under the two arrangements would reach about $5.7 billion or roughly about Dh20.93 billion. 

What the IMF found

The Fund says the programme remains broadly on track despite the Middle East conflict. Real GDP growth reached 4 percent in the first three quarters of FY26. Higher energy prices slowed momentum, and the IMF estimates full-year growth at 3.6 percent.

Headline inflation peaked in May and eased to about 10.3 percent in September. The current account stayed broadly balanced in FY26 on strong remittances. Gross reserves rose to about $21.5 billion (Dh78.9 billion) by end-September. Sovereign rating upgrades and renewed access to international markets also fed the assessment.

The IMF still rates risks as high. It flags geopolitical tensions, volatile energy prices, tighter global financial conditions and trade disruptions. “The authorities remain committed to sound macroeconomic policies, which are critical to safeguarding stability amidst the ongoing shock-prone environment,” it noted.

Conditions attached

IMF has laid down certain conditions that it wants met in order to successfully implement the programme. It has asked Islamabad to ensure that it holds the FY27 budget to an underlying primary surplus of 2 per cent of GDP. The IMF wants better risk-based audits, digital invoicing and third-party data to protect revenue targets. It also calls for a medium-term tax reform strategy.

It has asked for social spending on health and education to rise from 2.5 percent of GDP in FY26 to 2.8 percent in FY27. It stood at 2.2 percent in FY24. More importantly the Fund wants the fuel support scheme phased out promptly, citing its cost and broad targeting. Any future fuel relief must be limited, timebound and targeted through existing social assistance programmes.

The State Bank of Pakistan must keep policy tight until inflation returns durably to its target range. The IMF also wants exchange rate flexibility to continue.

On the energy front, the Fund has demanded timely tariff adjustments, gas cost recovery and lower unaccounted-for gas losses. It has also asked for private participation in power distribution to stop circular debt from building again. Under the RSF, Pakistan is working on irrigation water pricing, better-targeted electricity subsidies, energy-efficiency standards and transport decarbonisation. 

IMF to the rescue

Pakistan has turned to the IMF more than 20 times since 1958. The most recent run began with a $3 billion Stand-By Arrangement in July 2023. A 37-month EFF worth $7 billion followed in September 2024. The RSF, worth about $1.4 billion over 28 months, was added in 2025. 

Pakistan’s stock market has reacted positively to the news.The KSE-100 has gained 300-odd points in early trade on Thursday. The KSE-100 had gained 2,593 points, or 1.56 per cent, to close at 168,460 on October 6, as investors were betting on a positive outcome from the review talks.