After weeks of tense negotiations and mounting economic uncertainty, Pakistan has secured a crucial staff-level agreement with the International Monetary Fund (IMF) for the release of $1.2 billion in desperately needed funds. The agreement, announced on October 15, 2025, follows a series of high-stakes meetings in Islamabad, Karachi, and Washington DC, and marks a pivotal moment in the country’s ongoing struggle to stabilize its finances and recover from devastating natural disasters.
The package, which is still pending final approval by the IMF Executive Board, comprises $1 billion under the Extended Fund Facility (EFF) and an additional $200 million through the Resilience and Sustainability Facility (RSF). According to the Business Standard, these funds are part of a larger $7 billion bailout, initially approved in July 2024, designed to help Pakistan avoid defaulting on its international debt obligations.
The negotiations were led by IMF mission chief Iva Petrova, whose team worked closely with Pakistani authorities from September 24 to October 8. The talks covered the second review of the 37-month EFF and the first review of the 28-month RSF, both of which are integral to Pakistan’s broader economic reform agenda. The IMF’s overnight statement confirmed that the staff-level agreement is now subject to board approval, a formality that, if cleared, will bring total IMF disbursements to Pakistan under these arrangements to $3.3 billion.
For a country battered by economic instability and natural disasters, the timing of this agreement could hardly be more critical. Just weeks before the deal was reached, Pakistan was still reeling from catastrophic floods that killed more than 1,000 people and affected nearly 7 million, ravaging farmland, destroying infrastructure, and leaving entire communities in urgent need of assistance. The IMF, in its statement, expressed sympathy for those affected and underscored the urgent need for Pakistan to build greater resilience against climate-related risks.
"The recent floods highlight Pakistan’s vulnerability to natural disasters and climate-related risks, and stress the continuing need to build climate resilience," the IMF said, according to AP. The Fund’s message was clear: while the immediate crisis is being addressed through emergency relief and budget reallocations, Pakistan must also look to the future by strengthening its defenses against an increasingly volatile climate.
Despite the devastation wrought by the floods, the IMF acknowledged significant progress in Pakistan’s economic recovery. The fiscal year 2025 saw the country’s current account record a surplus for the first time in 14 years—a remarkable turnaround that has helped restore investor confidence. The Pakistan Finance Ministry hailed the IMF agreement as a "significant milestone" for the economy, a sentiment echoed by Prime Minister Shehbaz Sharif, who described it as proof of Pakistan’s improving macroeconomic fundamentals and growing foreign confidence in its recovery path.
"Supported by the EFF, Pakistan’s economic programme is entrenching macroeconomic stability and rebuilding market confidence. The recovery remains on track, with the FY25 current account recording a surplus—the first in 14 years," the IMF stated, as reported by Business Standard. Other key indicators are also moving in the right direction: the fiscal primary balance has surpassed program targets, inflation remains contained within the State Bank of Pakistan’s (SBP) target range of 5–7%, external buffers are strengthening, and sovereign spreads have narrowed significantly.
However, the path forward is far from easy. The IMF cautioned that the recent floods have weighed heavily on Pakistan’s economic outlook, particularly in the agriculture sector, which remains the backbone of the country’s economy. The damage has forced the IMF to revise its forecast for Pakistan’s gross domestic product (GDP) growth in fiscal year 2026 down to between 3.25% and 3.5%.
Pakistani authorities have reaffirmed their commitment to the EFF and RSF-supported programs, pledging to maintain prudent macroeconomic policies while advancing ongoing structural reforms. According to IMF mission chief Iva Petrova, the government is determined to meet the FY26 budget primary surplus target of 1.6% of GDP, anchored in efforts to mobilize additional revenue through tax policy and compliance measures. She also noted that authorities are prepared to take further action should revenue shortfalls threaten program targets.
"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," Petrova said. Efforts are also underway to enhance revenue mobilization, broaden burden-sharing between federal and provincial governments, and strengthen public financial management. Meanwhile, urgent flood relief support is being provided via reallocations in both provincial and federal budgets.
The IMF highlighted several areas of ongoing reform, including the establishment of a new tax policy office to simplify the tax code and reduce reliance on ad hoc measures. Collaboration between federal and provincial governments is being deepened to improve revenue sharing and financial management. The government is also pushing ahead with reforms in the power sector, aiming to prevent the accumulation of circular debt through timely tariff adjustments and by maintaining a progressive tariff structure.
In the energy sector, privatization and efficiency improvements are being prioritized alongside measures to restore the sector’s financial health. The authorities have pledged to ensure cost-reflective tariffs and to continue efforts to boost private sector development, improve governance, and reduce state intervention in the economy. Plans are also in motion to enhance trade competitiveness and productivity, as well as to implement reforms in agriculture to ensure food security.
Under the RSF, Pakistan aims to strengthen its resilience to climate change through green mobility initiatives, improved disaster risk financing, and enhanced water system management. The IMF, for its part, has expressed appreciation for the cooperation of Pakistani authorities, the private sector, and development partners throughout the mission.
The announcement of the IMF agreement triggered an immediate and positive reaction in the markets. The Pakistan Stock Exchange jumped almost 2,000 points following the news, a clear sign that investors see the deal as a vote of confidence in the country’s economic turnaround. Yet, as Business Standard notes, the deal is not a panacea. Sustained reforms, fiscal discipline, and climate resilience will be key to maintaining this momentum and ensuring continued IMF support.
As Pakistan looks to the future, the stakes could hardly be higher. The country faces a delicate balancing act: delivering on its promises of fiscal consolidation and reform, providing urgent relief to millions affected by natural disasters, and building the climate resilience needed to weather future storms. The IMF agreement offers some breathing room and a measure of hope—but the hard work is far from over.
