The government promises compliance with pre-war goals, money will be paid early next week
The government has accepted the need for a mini-budget if revenues do not meet expectations by the end of December 2025, according to the IMF. Photo: file
ISLAMABAD:
The International Monetary Fund’s executive board on Friday approved $1.2 billion in loan tranches after Pakistan agreed to a dozen new conditions and pledged compliance with pre-war program goals to keep its economic stabilization efforts on track.
With the fresh approval, Pakistan has so far received a $4.5 billion loan from the IMF against two separate debt packages totaling $8.4 billion.
Pakistan has access to an additional US$1 billion under the Extended Fund Facility and US$200 million under the Resilience and Sustainability Facility.
The money would be disbursed early next week, bringing the central bank’s reserves to over $17 billion, government officials said.
However, the government had to stick to the old fiscal and monetary targets and gave a commitment to remain on the path of stabilization despite strong voices against these policies, which have caused higher unemployment, higher poverty and higher income inequality.
The IMF’s executive board also approved a change to a performance criteria at the end of June, specifically the minimum limit for the SBP’s net international reserves.
It also set new performance criteria for the end of December 2026 and the end of June 2027 for the central bank. The $1 billion debt would be used for balance of payments support, while the $200 million is provided in budget support, according to government officials.
The IMF approval came after the government showed better performance against the fiscal and monetary targets, but there were divergent views on the way forward in the second half of this fiscal year.
The IMF mission had reviewed the performance of Pakistan’s economy for the period July-December 2025, covering the third review of the $7 billion bailout package.
Pakistan met all quantitative performance criteria by the end of December 2025 and the country also over-performed against the net international reserves floor and comfortably met the government’s primary balance target.
The government also achieved six out of eight indicative targets by the end of December 2025, but the Federal Board of Revenue remained the weakest link. It missed targets for net tax revenue collected by FBR and income tax revenue from retailers, which fell short of IMF targets.
However, the government assured the IMF that it would remain focused on implementing revenue management reforms to minimize the deficit by the end of the fiscal year. To offset the impact of revenue shortfalls on the IMF target, the government has raised oil tax rates.
The government also made some progress on structural reforms and met four structural benchmarks in the areas of governance, social support, gas sector sustainability and special technology zones on time.
As part of the terms of the $1.2 billion climate facility, the government adopted a green taxonomy and issued guidelines on managing climate-related financial risks and on listed companies’ disclosure of climate-related risks and opportunities.
Finance Minister Muhammad Aurangzeb assured the IMF that the country remains committed to continuing with sound and prudent macroeconomic policies and structural and institutional reforms to place Pakistan on a path towards long-term sustainable and inclusive growth.
The new assurances have also been given to lay the groundwork to withstand shocks, including the impact of the Middle East war, the government officials said.
Pakistan has now assured the IMF that it would not abandon the fiscal path agreed before the start of the Middle East war and deliver the primary budget surplus target of Rs3.4 trillion. The enforcement measures will be overhauled to cover the revenue shortfall from the FBR.
According to another commitment, the new budget would be made in consultation with the IMF to ensure that it is a fiscally tight budget and that the government does not chase higher economic growth, the officials said.
For the next fiscal year, the government has agreed to deliver a primary budget surplus target of Rs.2.84 trillion, equivalent to 2% of GDP.
Under the same plan, the State Bank of Pakistan has already raised interest rates to 11.5% and given a commitment to raise the rate further if inflation remains higher than the agreed limits, the sources said.
Pakistan has also assured the IMF that it will regularly adjust electricity and gas prices to maintain a progressive tariff structure and protect the most vulnerable from large tariff increases and cost-cutting reforms in the energy sector.
In total, they agreed to nearly a dozen more conditions, including approval of the new budget by the National Assembly in accordance with the fund’s agreement and changing laws governing the special economic and technological zones.
The government has committed to the IMF that Parliament will approve the 2026-27 financial year budget in line with the IMF staff agreement for the $7 billion program targets.
This is the second time that the government has accepted such a condition under the current programme, as the last budget had also been approved as per the IMF’s instructions.
The total number of conditions imposed by the IMF so far in the last less than two years has reached 75. These cover all areas of economic decision-making, governance and private sector development.
The sources said Pakistan has accepted the IMF condition that by June 2027 it will adopt amendments to the Special Economic Zones (SEZ) Act and the Special Technology Zones Act (STZA) to phase out existing fiscal incentives and shift from profit-based to cost-based incentives.
The country will also amend these laws to revoke the authority of the Board of Approval, Board of Investment and SEZ authorities to provide tax incentives. The legal changes would be made to the satisfaction of the IMF to completely phase out all existing fiscal incentives for STZs by 2035.
According to another commitment, the government would prohibit the export processing zones from selling their goods in the domestic market. The restriction to sell locally will be implemented in September this year, the sources said.
The industries in these export zones are often accused of selling a significant part of their production on the local market to evade taxes.
