ISLAMABAD: Amid a more challenging and highly uncertain external environment since the onset of the war in the Middle East, Pakistan needs to maintain strong macroeconomic policies while accelerating reform efforts, which are critical to managing further shocks and fostering higher sustainable medium-term growth, says the International Monetary Fund (IMF).
The Executive Board of the MF completed the third review of Pakistan’s economic reform program supported by the EFF and the second review of Pakistan’s RSF arrangement. This decision allows for an immediate disbursement of around USD 1.1 billion (SDR 760 million) under the EFF arrangement and around USD 220 million (SDR 154 million) under the RSF arrangement, bringing total disbursements under the two arrangements to about USD 4.8 billion (SDR 3,348 billion).
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The Fund has lowered Pakistan’s economic growth forecast to 3.5 percent and increased inflation projection to 8.4 percent for the next fiscal year. IMF has more than doubled the current account deficit projection for Pakistan during the next fiscal year to 0.9 percent of GDP, up from 0.4 percent projected for the current fiscal year.
Following the Executive Board discussion, Nigel Clarke, Deputy Managing Director and Acting Chair, made the following statement:
“Pakistan’s strong program implementation under the Extended Fund Facility (EFF) arrangement has continued, which has supported macroeconomic stability and the rebuilding of fiscal and foreign exchange buffers. GDP growth accelerated, inflation remained contained, and the current account was broadly balanced in the first nine months of fiscal year 2026. Amid a more challenging and highly uncertain external environment since the onset of the war in the Middle East, Pakistan needs to maintain strong macroeconomic policies while accelerating reform efforts, which are critical to managing further shocks and fostering higher sustainable medium-term growth.
“The authorities’ commitment to the fiscal year 2026 and fiscal year 2027 primary balance targets will help strengthen fiscal sustainability and policy credibility. Gradual fiscal consolidation remains appropriate to strengthen resilience and should be supported by continued efforts to boost revenue mobilization—through broadening the tax net and improving compliance—and strengthen spending efficiency and public financial management. These efforts would also create space for scaling up social assistance, human capital development, and productive public investment, while addressing tax policy distortions.
“The State Bank of Pakistan has acted proactively to maintain an appropriately tight monetary policy stance aimed at keeping inflation expectations anchored and should continue to carefully monitor potential second-round effects on domestic prices, wages, and expectations. Exchange rate flexibility should be the main shock absorber, particularly given the need to continue rebuilding reserves. Efforts to deepen the FX market should continue, including through a carefully-sequenced medium-term FX liberalization. Proactive efforts to support financial stability remain important, including ensuring all banks continue to be adequately capitalized, and addressing microfinance banks’ capital shortfalls.
“In an environment of high and volatile commodity prices, recent improvements in energy sector finances need to be sustained by keeping domestic fuel, electricity, and gas prices in line with costs, while protecting the most vulnerable consumers with targeted support. Continued reform efforts to reduce costs and address inefficiencies will safeguard the sector’s viability and improve Pakistan’s competitiveness.
“Advancing and deepening structural reforms is essential to generate sustainable economic growth and attract high-impact private investment. Efforts should continue to deliver on the Economic Governance Reform actions aimed at bolstering anti-corruption institutions. Other priorities include completing SOE reforms and privatization and enhancing the business environment by eliminating distortions and unnecessary regulations.
“Reducing Pakistan’s vulnerability to climate shocks will enhance macroeconomic and fiscal sustainability. Reforms supported by the RSF are helping to strengthen natural disaster response and financing coordination, improve the use of scarce water resources, reflect climate considerations in project selection and budgeting, and improve the climate information architecture,” it noted.
Copyright Business Recorder, 2026