Bailed Out Again: Pakistan Secures USD 1.21 Billion IMF Lifeline Amid Economic Distress

The International Monetary Fund has reached a staff-level agreement with Pakistan that could release about $1.21 billion in additional financing, while warning that geopolitical tensions, high energy prices and trade disruptions still threaten the country's recovery.

The IMF announced the agreement on Wednesday. It covers the fourth review of Pakistan's 37-month Extended Fund Facility (EFF) and the third review of its 28-month Resilience and Sustainability Facility (RSF). The IMF Executive Board must approve it before any money is disbursed.

Once cleared, Pakistan will have access to about $1 billion under the EFF and about $210 million under the RSF, bringing total disbursements under the two arrangements to roughly $5.7 billion.

An IMF team led by Iva Petrova held discussions with Pakistani officials in Karachi and Islamabad from September 23 to October 7. The talks also covered the 2026 Article IV consultation, the Fund's regular annual assessment.

"Supported by the EFF, the authorities have successfully navigated the impact of the Middle East conflict, and strong policies have helped preserve macroeconomic stability," Petrova said. She added that "risks remain high, particularly from geopolitical tensions, volatile energy prices, tighter global financial conditions, and trade disruptions."

WHERE THE ECONOMY STANDS

Pakistan's economy grew an estimated 3.6 per cent in FY26, held back by high energy costs and supply bottlenecks. Real GDP growth was 4 per cent over the first three quarters of the fiscal year.

Inflation, which peaked in May, eased to about 10.3 per cent by September. The current account is roughly balanced, helped by strong remittances from the diaspora. Foreign exchange reserves rose to about $21.5 billion at the end of September.

The IMF said credit rating upgrades and a tentative return to international debt markets pointed to improved policy credibility, but cautioned that the recovery remains exposed to external shocks.

WHAT THE IMF WANTS

The Fund urged Pakistan to keep up fiscal discipline and carry out its FY27 budget, aiming for a primary surplus of 2 per cent of GDP. It called for stronger tax administration, including risk-based audits, automated digital invoicing and cross-checks against third-party data.

It also asked the government to improve public financial management and procurement and to streamline cash management, to reduce borrowing costs and debt rollover risks.

On social spending, the IMF noted that health and education spending has risen from 2.2 per cent of GDP in FY24 to 2.5 per cent in FY26, with a target of 2.8 per cent in FY27. It praised the expansion of targeted welfare payments but called for an end to Pakistan's fuel support scheme, citing its fiscal cost and scope.

The State Bank of Pakistan was told to keep a tight monetary stance until inflation is durably back within its target range. In the energy sector, the Fund asked for prompt tariff adjustments, better efficiency, more competition in electricity distribution and steps to stop the build-up of circular debt, the unpaid bills that pile up along the power supply chain.

The EFF is a $7 billion, 37-month programme that the IMF Executive Board approved in September 2024, aimed at fiscal reform, tax revenue and the energy sector's debts. The RSF is a separate $1.4 billion facility that gives longer-term financing for climate resilience and structural reforms. Pakistan had received about $4.8 billion under the two arrangements before this review.

Disbursement is expected in four to five weeks if the Board approves, according to Pakistani press reports.

With inputs from ANI