By Ali Imran
ISLAMABAD: Following its approval of two loan tranches totalling $1.29 billion, the International Monetary Fund (IMF) has urged Pakistan to continue a tight monetary policy, broaden and simplify its tax regime, adjust power and gas tariffs, and pursue structural reforms to fix the ailing economy, The News reported on Wednesday.
The lender, a day earlier, announced that its Executive Board completed the second review of the Extended Arrangement under the Extended Fund Facility (EFF), allowing the authorities to draw the equivalent of about $1 billion, and the first review of the arrangement under the Resilience and Sustainability Facility (RSF), allowing the authorities to draw the equivalent of about $200 million.
“Accelerating reforms in the energy sector is critical to safeguarding its viability and improving Pakistan’s competitiveness. Timely implementation of power tariff adjustments has helped reduce the stock and flow of circular debt,” said IMF Deputy Managing Director and EB’s Acting Chair Nigel Clarke.
Highlighting that subsequent efforts need to focus on sustainably reducing electricity production and distribution costs and addressing inefficiencies in the power and gas sectors, Clarke said that efforts to advance structural reforms should continue to unlock growth potential and attract high-impact private investment.
“The publication of the Governance and Corruption Diagnostic report is a welcome step in accelerating governance reforms. Additional efforts should focus on SOE governance reforms and privatisation, enhancing the business environment and improving economic data and statistics,” the IMF official noted.
The IMF has said that Islamabad’s strong implementation of the IMF programme, despite recent devastating floods, has maintained stability and improved financing and external conditions.
Policy priorities remain centred on maintaining macroeconomic stability and advancing reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, bolster the social safety net and human capital, reform state-owned enterprises (SOEs), and improve public service provision and energy sector viability.
The recent floods highlight the urgency of moving swiftly on climate-related reforms to build resilience to the frequent natural disasters that Pakistan faces. The authorities are making progress on such reforms, supported by the RSF.
The completion of the reviews allows for an immediate disbursement of around $1 billion under the EFF and around $200 million under the RSF, bringing total disbursements under the two arrangements to about $3.3 billion.
The country’s 37-month EFF aims to build resilience and enable sustainable growth. Key priorities include entrenching macroeconomic stability through consistent implementation of sound macro policies, including rebuilding international reserve buffers and broadening the tax base; advancing reforms to strengthen competition and raise productivity and competitiveness; and reforming SOEs and improving public service provision.
Pakistan’s policy efforts under the EFF have delivered significant progress in stabilising the economy and rebuilding confidence amid a challenging global environment and recent severe floods. Fiscal performance has been strong, with a primary surplus of 1.3% of GDP achieved in FY25, in line with targets. Gross reserves stood at $14.5 billion at end-FY25, up from $9.4 billion a year earlier.
The 28-month RSF is supporting the authorities’ efforts to reduce vulnerabilities to natural disasters and to build economic and climate resilience. The authorities’ programme prioritises building resilience to natural disasters and strengthening public investment processes; making scarce water resource usage more efficient, including through better pricing; and strengthening federal-provincial coordination of natural disaster response.
“Pakistan’s reform implementation under the EFF arrangement has helped preserve macroeconomic stability in the face of several recent shocks. Real GDP growth has accelerated, inflation expectations have remained anchored, and fiscal and external imbalances have continued to moderate,” remarked Clarke.
The IMF deputy managing director further pointed out that in the face of an uncertain global environment, Pakistan needs to maintain prudent policies to further entrench macroeconomic stability, while accelerating reforms necessary to achieve stronger, private sector-led, and sustainable medium-term growth.
“The authorities’ commitment to the FY2026 primary balance target while accommodating urgent relief needs in response to the recent severe floods is a strong signal of their commitment to build fiscal policy credibility. In parallel, advancing reforms to raise revenues via tax policy simplification and base broadening is key to achieving fiscal sustainability and building the fiscal space necessary to boost climate resilience, social protection, human capital development and public investment.
“An appropriately tight monetary policy stance has been pivotal in reducing inflation and should be maintained to ensure inflation remains anchored within the SBP’s target range. Further improvements in central bank communication will support effective monetary policy implementation,” he added.
Furthermore, the IMF official advised that the SBP should continue efforts to deepen the interbank foreign exchange market, while allowing exchange rate flexibility to absorb shocks.
Decisive financial regulation enforcement is necessary to maintain a sound and adequately capitalised financial sector. At the same time, promoting capital market development will help expand the public and private sectors’ financing options, he concluded.
