The International Monetary Fund (IMF) has approved the release of $1.2 billion in loan tranches for Pakistan after the government accepted of 12 new conditions and a formal pledge to maintain pre-war economic targets.
The funds, part of two debt packages totaling $8.4 billion, are expected to be disbursed early next week, bringing the State Bank of Pakistan’s foreign exchange reserves above $17 billion.
The approval includes $1 billion under the Extended Fund Facility (EFF) for balance of payment support and $200 million via the Resilience and Sustainability Facility for budget support.
While the board noted improved performance against fiscal and monetary targets for the July-December 2025 period, the government committed to staying on a stabilization path that critics argue has contributed to higher unemployment and income inequality.
Data from the third review of the $7 billion bailout package shows Pakistan met all quantitative performance criteria for the end of 2025.
The government exceeded the floor on net international reserves and met the primary balance target.
However, the Federal Board of Revenue (FBR) missed its targets for net tax collection and income tax from retailers. To address this shortfall, the government increased petroleum levy rates and assured the IMF it would fast-track revenue administration reforms.
Structural benchmarks were met in areas including social support, governance, and gas sector sustainability. As part of the climate facility requirements, the government adopted a green taxonomy and issued guidelines for managing climate-related financial risks.
Finance Minister Muhammad Aurangzeb told the IMF that Pakistan remains committed to “prudent macroeconomic policies and structural and institutional reforms to place Pakistan on a path toward long-term sustainable and inclusive growth”.
Government officials stated that these assurances are intended to help the economy withstand external shocks, such as the conflict in the Middle East. Pakistan has promised not to deviate from the fiscal path set before the war began, aiming for a Rs3.4 trillion primary budget surplus.
Future commitments include consulting the IMF on the next federal budget to ensure fiscal tightness rather than chasing aggressive economic growth.
For the upcoming fiscal year, the government agreed to a primary budget surplus target of Rs2.84 trillion, or two percent of the GDP.
Monetary policy remains tight, with the State Bank of Pakistan maintaining interest rates at 11.5 percent. The central bank has committed to further hikes if inflation exceeds agreed limits.
On the energy front, the government will continue regular adjustments to electricity and gas prices while attempting to shield vulnerable populations through a progressive tariff structure.
The IMF has now imposed a total of 75 conditions over the last two years. New requirements include National Assembly approval of the 2026-27 budget in strict alignment with IMF targets.
Additionally, by June 2027, Pakistan must amend laws governing Special Economic Zones (SEZs) and the Special Technology Zones Authority (STZA). These changes will phase out profit-based incentives in favor of cost-based models and remove the authority of local boards to grant tax incentives.
By September this year, the government will also prohibit Export Processing Zones from selling goods in the domestic market to prevent tax evasion.
