Pakistan reaches staff-level agreement with IMF on $1.3B climate financing, loan review

Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on the first review of the $7 billion Extended Fund Facility and a new 28-month arrangement under the Resilience and Sustainability Facility (RSF) for $1.3 billion.

Upon the approval of the IMF's Executive Board, Pakistan will receive $1 billion, taking the total disbursement under the 37-month EFF to $2 billion, the international lender said in a press release on Tuesday.

The staff-level agreement follows discussions between the authorities and an IMF delegation that visited the country from Feb 24 to March 14.

"Over the past 18 months, Pakistan has made significant progress in restoring macroeconomic stability and rebuilding confidence despite a challenging global environment. While economic growth remains moderate, inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger," the IMF observed.

"While economic activity is expected to steadily improve, downside risks also remain elevated. Potential macroeconomic policy slippages — driven by pressures to ease policies — along with geopolitical shocks to commodity prices, tightening global financial conditions, or rising protectionism could undermine the hard-won macroeconomic stability. Additionally, climate-related risks continue to pose a significant challenge for Pakistan, creating a need to build resilience including through adaptation measures," it added.

The international lender emphasized that Pakistan must solidify the progress it has made in 1.5 years by building resilience by further strengthening public finances, ensuring price stability, rebuilding external buffers and eliminating distortions in support of stronger, inclusive and sustained private sector-led growth.

"The authorities reiterated their commitment to the EFF-supported program and plan to supplement their efforts by advancing reforms under the RSF-supported program aiming to address long standing economic vulnerabilities to climate shocks and build resilience," the IMF said.

The interval between a staff-level agreement and the subsequent Executive Board meeting typically ranges from about four to eight weeks, although it can extend to two to three months if additional policy actions or internal reviews are needed. This period allows the IMF to finalize detailed documentation, ensure that the borrowing country has completed any necessary prior actions, and schedule the meeting in line with its internal agenda and compliance requirements.

Thus, Pakistan can expect to get the executive board approval for the aforementioned tranches between April-end or mid-May.

Key Reform Commitments

Authorities have pledged to continue fiscal consolidation with a target of achieving a primary surplus of at least 1% of GDP in fiscal year 2024-25 (FY25), and to maintain the generosity of the Benazir Income Support Programme. While curbing unbudgeted spending, the government also aims to create savings in energy subsidies and prioritize development expenditure.

Structural reforms are central to the IMF-backed plan. All four provinces have amended their Agriculture Income Tax regimes — a step toward tax equity —t hough effective implementation remains crucial. The federal government will also pursue broader revenue mobilization, spending transparency through e-PADS, and enhanced public debt management.

On the monetary front, the State Bank of Pakistan will continue with a tight, data-dependent policy stance to anchor inflation within the 5–7% target range. Authorities reaffirmed their commitment to a flexible exchange rate and rebuilding foreign exchange reserves.

Energy Sector and Climate Reforms

The government aims to continue energy sector reforms by reducing circular debt and improving system efficiency. This includes tariff adjustments, improved distribution, and privatization of inefficient generation companies, as well as greater integration of renewable energy.

The RSF-supported agenda also outlines reforms in climate resilience. These include prioritizing disaster-resilient public investment, better water resource pricing, coordination on disaster financing, and promoting green mobility.