The International Monetary Fund (IMF) has commended Pakistan’s government for its fiscal policy efforts, highlighting significant achievements in reducing public debt, controlling inflation, enhancing tax equity, and maintaining price stability.
In a statement issued following discussions from February 24 to March 14, 2025, IMF mission chief Nathan Porter acknowledged the “significant progress” Pakistan has made in restoring macroeconomic stability despite global challenges.
The IMF lauded the government’s commitment to fiscal consolidation, noting that Pakistan is on track to achieve an underlying primary surplus of at least 1.0 percent of GDP for FY25 and intends to maintain this trajectory into FY26. The statement also highlighted the government’s resolve to control current expenditures while preserving social spending through the Benazir Income Support Programme (BISP) and reducing energy subsidies.
A key milestone, according to the IMF, is the amendment of Agriculture Income Tax (AIT) regimes across all four provinces—a step seen as essential for broadening the tax base and promoting greater fiscal equity.
The IMF also acknowledged the State Bank of Pakistan’s (SBP) prudent approach to monetary policy, praising the government’s commitment to maintaining a tight, data-dependent stance to anchor inflation between 5–7 percent. The statement highlighted that inflation has declined to its lowest level since 2015, reflecting the effectiveness of Pakistan’s monetary policies. Furthermore, the authorities’ pledge to ensure a fully functioning foreign exchange market and to rebuild foreign currency reserves was recognized as a crucial measure for macroeconomic stability.
The statement emphasized the Pakistani government’s progress in energy sector reforms, including timely adjustments in electricity and gas tariffs to reduce circular debt. The IMF encouraged further reforms in energy distribution efficiency and increased adoption of renewable energy to sustain these gains.
Additionally, the IMF acknowledged Pakistan’s efforts to improve governance through public financial management systems such as the electronic Pakistan Acquisition and Disposal System (e-PADS), and its commitment to strengthening debt management frameworks to ensure long-term fiscal sustainability.
The IMF staff-level agreement is subject to the Executive Board’s approval, which would unlock $1 billion in funding under the Extended Fund Facility (EFF), bringing Pakistan’s total disbursements to $2 billion.
Here is the full text of the IMF statement:
IMF staff and the Pakistani authorities have reached a staff-levelagreement on the first review under Pakistan’s Extended Fund Facility(EFF) and on a new arrangement under the Resilience and SustainabilityFacility (RSF).
The strong implementation of the EFF-supported program continues, andthe authorities remain committed to advancing a gradual fiscalconsolidation to sustainably reduce public debt, maintaining asufficiently tight monetary policy to keep inflation low, acceleratingcost-reducing energy sector reforms to enhance its viability, andimplementing Pakistan’s reform agenda to accelerate growth, whilestrengthening social protection and health and education spending.
The RSF will support Pakistan’s efforts in building resilience tonatural disasters, enhancing budget and investment planning to promoteclimate adaptation, improving the efficient and productive use ofwater, strengthening the climate information architecture to improvedisclosure of climate risks, and aligning energy sector reforms withmitigation targets.
Washington, DC: An International Monetary Fund (IMF) team, led byNathan Porter, held discussions during a February 24-March 14, 2025mission to Karachi and Islamabad, and virtually thereafter, for thefirst review of Pakistan’s economic program supported by the ExtendedFund Facility (EFF) and on a new arrangement under the IMF’sResilience and Sustainability Facility (RSF). Mr. Porter issued thefollowing statement at the conclusion of discussions:
“The IMF team has reached a staff-level agreement (SLA) with thePakistani authorities on the first review of the 37-month ExtendedArrangement under the Extended Fund Facility (EFF), and on a new28-month arrangement under the IMF’s RSF with total access over the 28months of around $1.3 billion (SDR 1 billion). The staff-levelagreement is subject to approval of the IMF’s Executive Board. Uponapproval, Pakistan will have access to about US$1.0 billion (SDR 760million) under the EFF, bringing total disbursements under the programto about US$2.0 billion.
“Over the past 18 months, Pakistan has made significant progress inrestoring macroeconomic stability and rebuilding confidence despite achallenging global environment. While economic growth remainsmoderate, inflation has declined to its lowest level since 2015,financial conditions have improved, sovereign spreads have narrowedsignificantly, and external balances are stronger. While economicactivity is expected to steadily improve, downside risks also remainelevated. Potential macroeconomic policy slippages—driven by pressuresto ease policies—along with geopolitical shocks to commodity prices,tightening global financial conditions, or rising protectionism couldundermine the hard-won macroeconomic stability. Additionally,climate-related risks continue to pose a significant challenge forPakistan, creating a need to build resilience including throughadaptation measures.
“In this regard, it is critical to stay the course and entrench theprogress achieved over the past one and a half years, buildingresilience by further strengthening public finances, ensuring pricestability, rebuilding external buffers and eliminating distortions insupport of stronger, inclusive and sustained private sector-ledgrowth.
The authorities reiterated their commitment to the EFF-supportedprogram and plan to supplement their efforts by advancing reformsunder the RSF-supported program aiming to address long standingeconomic vulnerabilities to climate shocks and build resilience. Theauthorities’ policy priorities include:
Continued fiscal consolidation to reduce public debt while creatingspace for social and development spending and reducing crowding out ofprivate investment. The authorities are on track to achieve an FY25underlying primary surplus of at least 1.0 percent of GDP andcommitted to sustaining consolidation in the FY26 budget. Whilerefraining from increasing current spending beyond that budgeted, theauthorities are committed to preserve the generosity of the BenazirIncome Support Programme (BISP) unconditional cash transfer programand aim to create savings on energy subsidies and prioritizedevelopment spending.
Making further progress on fiscal structural reforms. The authoritiesare determined to continue efforts to enhance revenue mobilization,spending efficiency, and transparency, broadening the tax base.Notably, all four provinces have amended their Agriculture Income Tax(AIT) regimes—an important step towards greater tax equity andexpanding the tax base—although effective implementation is crucial tothe AIT’s success and greater fiscal devolution in FY26. Theauthorities also remain committed to improving public financialmanagement, ensuring spending transparency through the electronicPakistan Acquisition and Disposal System (e-PADS),and developing debtmanagement to strengthen sustainability and governance.
Maintaining appropriately tight monetary policy. Recognizing that thefull impact of recent rate cuts is still to be felt, the authoritieswill continue with an appropriately tight and data-dependent monetarypolicy to ensure inflation remains anchored within the State Bank ofPakistan’s (SBP) medium-term target range of 5–7 percent. They arecommitted to preserving a fully functioning foreign exchange market tosupport exchange rate flexibility while rebuilding FX reserve buffers.
Continuing fundamental cost-reducing reforms in the energy sector toenhance viability and lower tariffs. The authorities’ timelyimplementation of electricity and gas tariff adjustments, along withthe early impact of reforms, has helped reduce the stock and flow ofthe sector’s circular debt, and both should remain a priority. It isnecessary to accelerate cost-side reforms, including improvingdistribution efficiencies, integrating captive power into theelectricity grid, enhancing the transmission system, privatizinginefficient generation companies, and expanding renewable energyadoption.
Delivering structural reform agenda to reduce inefficiencies, boostproductivity, and support private sector development. The authoritieswill advance their efforts to fully implement the SOE governanceframework across all SOEs, while adopting appropriate governancemechanisms and safeguards for the Pakistan Sovereign Wealth Fund(PSWF). They will further strengthen institutional capacity to fightcorruption and significantly reduce trade barriers to supportinclusive growth and a level playing field for business andinvestment.
Scaling up climate reform efforts to reduce vulnerabilities to naturaldisaster risks and to build climate resilience. Supported by the RSF,the authorities’ program is committed to: (i) strengthening publicinvestment processes across all levels of government to prioritizeprojects that enhance disaster resilience; (ii) improving theefficiency of scarce water resource usage, including through betterpricing mechanisms; (iii) enhancing intergovernmental coordination ondisaster financing; (iv) improving information architecture anddisclosure of financial and corporate climate-related risks; and (v)promoting green mobility to mitigate significant pollution and adversehealth impacts.
“The IMF team is grateful to the Pakistani authorities, privatesector, and development partners for their hospitality during thevisit to Islamabad and Karachi, and fruitful discussions”.
