In a development closely watched by financial markets and policymakers alike, Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement for the release of $1.2 billion in financial assistance, marking a pivotal moment for the country’s ongoing economic stabilization efforts. The deal, announced on October 15, 2025, comes after two weeks of intensive negotiations in Islamabad and Karachi, and is seen as a crucial step toward bolstering Pakistan’s macroeconomic stability amid a backdrop of devastating natural disasters and persistent fiscal challenges.
According to AP and multiple financial outlets, the agreement follows a comprehensive evaluation mission by IMF representatives, who conducted their review from September 24 to October 8. The arrangement includes $1 billion from the Extended Fund Facility (EFF) and an additional $200 million through the Resilience and Sustainability Facility (RSF), both pending formal approval by the IMF Executive Board in the coming weeks. Should the Board give its nod, total disbursements under these programs would rise to approximately $3.3 billion, providing much-needed liquidity and support for Pakistan’s economic reform agenda.
This latest tranche builds on the $7 billion bailout package initially approved by the IMF in July 2024, a move that was designed to keep Pakistan from defaulting on its debt repayments. The urgency of international support was underscored in recent months by catastrophic floods that killed more than 1,000 people and affected nearly 7 million, wreaking havoc on housing, infrastructure, and vast swathes of agricultural land. The IMF, in its official statement, expressed sympathy for those affected and emphasized that the disaster highlighted Pakistan’s acute vulnerability to climate-related risks.
IMF Mission Chief Iva Petrova, who led the discussions with Pakistani authorities, stated, “Supported by the EFF, Pakistan’s economic programme is entrenching macroeconomic stability and rebuilding market confidence.” She further noted that the authorities remain committed to achieving a fiscal year 2026 budget primary surplus of 1.6% of GDP, anchored by sustained efforts to mobilize revenue through tax policy and compliance measures. “They stand ready to take necessary actions should revenue shortfalls risk programme targets,” Petrova added, according to The Economic Times.
The IMF’s assessment of Pakistan’s economic recovery was cautiously optimistic. Officials acknowledged that the country had achieved its first current account surplus in 14 years during fiscal year 2025—a milestone that signals improved fiscal performance and better inflation management. The Fund also praised Islamabad’s consistent implementation of reform measures, including fiscal discipline, price stability, and energy-sector reforms. According to the IMF, the fiscal primary balance exceeded targets, inflation was contained within the State Bank of Pakistan’s (SBP) target range of 5–7%, and external reserves had improved, supported by easing financial pressures and narrowing sovereign spreads.
The announcement of the agreement had an immediate impact on investor sentiment. The Pakistan Stock Exchange surged nearly 2,000 points following the news, reflecting renewed confidence in the country’s economic trajectory. Prime Minister Shehbaz Sharif welcomed the agreement, describing it as evidence of “Pakistan’s improved macroeconomic indicators and growing international confidence in its recovery trajectory,” as reported by The Express Tribune.
Yet, the path ahead remains fraught with challenges. The recent floods have not only inflicted human tragedy but also dampened short-term growth prospects. The IMF has consequently lowered Pakistan’s projected GDP growth for fiscal year 2026 to between 3.25% and 3.5%, citing the disaster’s impact on agriculture and infrastructure. The Fund stressed the urgency of building climate resilience into Pakistan’s economic planning, warning that climate vulnerability remains a major threat to long-term stability.
To maintain IMF support and ensure continued disbursements, Pakistan faces a rigorous set of requirements. Authorities must sustain fiscal discipline and enhance revenue collection, ensure the viability of the energy sector through pricing and governance reforms, keep inflation within target ranges, and advance climate resilience reforms under the RSF. Efforts are already underway to broaden burden-sharing between federal and provincial governments, strengthen public financial management, and provide urgent flood relief support through reallocations in the provincial and federal budgets.
In the energy sector, the government has pledged to stop the build-up of circular debt—a persistent drag on fiscal health—by enforcing cost-reflective tariffs, improving efficiency in power distribution, and accelerating privatization. Petrova emphasized that “Pakistan remains committed to preventing [circular debt] accumulation through timely tariff adjustments that ensure cost recovery and maintaining a progressive tariff structure.”
Reforms are also being pursued to improve tax administration, strengthen federal-provincial coordination, and boost private-sector competitiveness. A new tax policy office has been established to streamline regulations and minimize reliance on one-off tax measures. Under the RSF, Pakistan aims to invest in climate-resilient infrastructure, green transportation, water resource management, and disaster-risk financing to mitigate future shocks.
The IMF’s latest staff-level agreement builds upon previous support, including last year’s final review of a $3 billion stabilization package designed to address Pakistan’s balance of payments challenges. The Fund commended Pakistani authorities for reaffirming their commitment to prudent fiscal management and reform continuity, with key priorities including fiscal consolidation, poverty reduction, enhanced revenue mobilization, and a tight, data-driven monetary policy.
The international community has taken note of these efforts. The IMF expressed appreciation for the cooperation shown by Pakistani officials and extended sympathy to those affected by the floods, noting that the mission benefited from “constructive engagement with the authorities, private sector representatives, and development partners.” As the IMF’s Executive Board prepares to review the agreement in the coming weeks, all eyes will be on Islamabad to see if the country can maintain the momentum of reform and resilience.
The stakes are high. For Pakistan, the IMF deal is more than just a financial lifeline—it’s a vote of confidence in the country’s ability to manage its own economic destiny, even in the face of adversity. Sustained commitment to reforms and climate resilience will be essential if Pakistan is to keep the hard-won gains of recent months and chart a course toward lasting stability.
