The International Monetary Fund (IMF) said on Wednesday that it had reached a staff-level agreement (SLA) with Pakistan on its loan programmes, which would allow the country to access $1.2 billion after approval from the fund’s board.

If approved, the IMF will provide Pakistan $1bn under its Extended Fund Facility (EFF) and $200 million under its Resilience and Sustainability Facility (RSF), bringing total disbursements under the two arrangements to about $3.3bn.

Last week, an IMF mission led by Iva Petrova had concluded talks with Pakistani authorities on the second review of the EFF — agreed in 2024 to shore up the economy after a severe financial crisis — and the first one for the RSF climate loan.

The mission had left Pakistan without signing a staff-level agreement. However, the Fund had said “significant progress” had been made towards reaching the deal. A day earlier, Finance Minister Muhammad Aurangzeb — who is currently in Washington — had expressed the hope that the agreement would be reached this week.

In a statement issued early on Wednesday by the Fund, Petrova stated that the staff-level agreement remained subject to approval by the IMF Executive Board.

“Supported by the EFF, Pakistan’s economic programme is entrenching macroeconomic stability and rebuilding market confidence,” she said.

“The recovery remains on track, with the FY25 current account recording a surplus — the first in 14 years, the fiscal primary balance surpassing the programme target, inflation remaining contained, external buffers strengthening, and financial conditions improving as sovereign spreads have narrowed significantly,” she said.

However, the IMF official added, the recent floods had weighed on the country’s outlook, particularly of the agriculture sector, bringing down the projected FY26 gross domestic product (GDP) to about 3.25-3.5 per cent.

“The floods underscore Pakistan’s high vulnerability to natural disasters and substantial climate-related risks, and the continuing need to build climate resilience,” Petrova said.

She also said that the Fund wanted to express its sympathy to those affected by the recent floods, adding that it was “grateful to the Pakistani authorities, private sector, and development partners for many fruitful discussions and their hospitality throughout this mission”.

‘Pakistan reaffirmed commitment to maintaining prudent macroeconomic policies while advancing reforms’

The IMF official also noted progress on Pakistan’s policy priorities, saying: “The authorities reaffirmed their commitment to the EFF and RSF-supported programmes, and to maintaining sound and prudent macroeconomic policies while advancing ongoing structural reforms.”

She said that authorities remained committed to meeting the FY26 budget primary surplus of 1.6 per cent of GDP, anchored in sustained efforts to mobilise revenue through tax policy and compliance measures, and “stand ready to take necessary actions should revenue shortfalls risk program targets”.

“At the same time, the authorities are assessing the flood damage and are providing urgent flood relief support in the affected provinces via reallocations in the provincial and federal budgets,” Petrova said.

She also noted that social protection remained a key pillar of the EFF-supported programme and authorities were working on enhancing the generosity, coverage and administrative capacity of the Benazir Income Support Programme (BISP).

“They are also committed to scaling up non-BISP health and education spending at both the federal and provincial levels to support inclusive growth and safeguard vulnerable populations,” she said.

She further said that efforts were underway to enhance revenue mobilisation, broaden burden-sharing between federal and provincial governments, and strengthen public financial management.

“In particular, recognising the provinces’ vital role in domestic revenue mobilisation, the federal authorities will continue deepening collaboration with provincial counterparts.

“The authorities are also making important progress in strengthening tax policy design, with the newly established tax policy office, which will lead medium-term reforms to simplify the tax code and reduce reliance on ad hoc measures,” she said.

The IMF official noted that the State Bank of Pakistan (SBP) was committed to a prudent monetary policy stance, guided by incoming data, including the impact of recent floods and the evolving economic recovery, to ensure inflation remains durably within its target range of five to seven per cent.

“While the floods are likely to have a temporary impact on prices, the SBP stands ready to adjust its policy stance should price pressures intensify or inflation expectations become unanchored. While the sustained buildup of international reserves is welcome, further steps are needed to deepen the foreign exchange market to facilitate transactions, support price discovery, and cushion external shocks,” she said.

On the issue of circular debt, she said that Pakistan remained committed to preventing its accumulation through timely tariff adjustments that ensure cost recovery and maintaining a progressive tariff structure.

“Structural reforms continue to focus on enhancing the performance, efficiency, and governance of distribution companies, including through privatisation; upgrading the transmission system; privatising inefficient generation companies; and completing the transition to a competitive electricity market,” Petrova said.

She further said that authorities were making progress in delivering structural reforms aimed at boosting productivity, strengthening governance, and improving the business environment to support private sector development.

“Further effort is needed to advance the state-owned enterprise reform agenda and scale back the state’s footprint in the economy. The authorities are also planning reforms to reduce government intervention in commodity markets to foster a productive, diversified, and internationally competitive agricultural sector that meets food security needs. Efforts to boost international trade continue, including with the implementation of the new national tariff policy,” she said.

Petrova went on to say that the recent floods and those of 2022 had underscored the need for building Pakistan’s climate resilience.

“Policies supported by the RSF and aligned with national commitments are helping to strengthen resilience, including recently implemented reforms to promote green mobility and transport decarbonisation,” she noted.

“The authorities remain committed to advancing future reforms, including strengthening the climate information architecture and financial risk management, improving water system resilience, establishing a framework for coordinated disaster risk financing, and aligning energy sector reforms with national mitigation commitments,” she added.

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