ISLAMABAD: Without changing the macroeconomic and fiscal framework of Pakistan, including slashing down the FBR’s tax collection target, Pakistan and the IMF have struck a staff-level agreement on the third review under the Extended Fund Facility and second review of the Resilience and Sustainability Facility (RSF).
This SLA will pave the way for the release of $1.2 billion after getting the assent of the IMF’s Executive Board within a four to six-week period.
Despite the demand of Islamabad to show a lenient attitude and allow Islamabad to revise downward the FBR’s tax collection target, the IMF did not change the FBR’s target of Rs13,979 billion. On the eve of the budget for 2025-26, parliament had approved the FBR’s tax collection target of Rs14,130 billion. The FBR had requested to slash it down in the range of Rs13.43 trillion, but the IMF turned down this request.
“The authorities remain committed to ensuring a sustainable fiscal position and reducing the still high public debt burden to more moderate levels over the medium term. To this end, efforts are going on to meeting the FY26 budget primary surplus of 1.6 percent of GDP and to target an underlying primary balance of 2 percent of GDP in FY27, supported by measures to broaden the tax base and strengthen expenditure discipline, while expanding health, education and social protection spending and strengthening federal provincial burden sharing,” the IMF stated in its statement.
The IMF also placed a prior condition to ensure the tightening of monetary policies in the aftermath of geopolitical tension in the region.
According to the IMF statement, the IMF staff and Pakistani authorities have reached a staff-level agreement on the third review under Pakistan’s Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF).
The programme implementation under the EFF remained broadly aligned with the authorities’ objectives to strengthen public finances; ensure inflation remains durably within the State Bank of Pakistan’s target range; advance reforms to improve the viability of energy sector; and deepen structural reforms, while strengthening social protection and rebuilding health and education spending.
The authorities’ climate reform agenda, backed by the RSF, is progressing, and the authorities remain committed to implementing comprehensive reforms and policies that enhance resilience and reduce vulnerabilities to climate-related risks.
An International Monetary Fund (IMF) team, led by Ms Iva Petrova, held discussions on the third review under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF) in Karachi and Islamabad from February 25 to March 2, 2026, and virtually afterward. At the conclusion of the discussions, Ms Petrova issued the following statement: “The IMF team has reached a staff-level agreement with the Pakistani authorities on the third review of the 37-month Extended Arrangement under the Extended Fund Facility (EFF) and the second review of the 28-month arrangement under the Resilience and Sustainability Facility (RSF). The staff-level agreement is subject to approval by the IMF Executive Board.
Upon approval, Pakistan will have access to about $1.0 billion (SDR 760 million) under the EFF and about $210 million (SDR 154 million) under the RSF, bringing total disbursements under the two arrangements to about $4.5 billion.
“Supported by the EFF, ongoing policies have continued to strengthen the economy and rebuild market confidence. Following the recovery in FY25, economic activity gained further momentum in the first part of the current fiscal year. Inflation and the current account balance remained contained, and external buffers continued to strengthen. The conflict in the Middle East, however, casts a cloud over the outlook as volatile energy prices and tighter global financial conditions risk putting upward pressure on inflation and weigh on growth and the current account.
“The authorities remain committed to pursuing sound and prudent macroeconomic policies to preserve the recent gains in macro-financial stabilisation, while deepening structural reforms to accelerate growth and strengthening social protection to mitigate the impact of volatile energy prices on the most vulnerable. The authorities’ policy priorities include:
ADVANCING FISCAL STRUCTURAL REFORMS
Steadfast implementation of fiscal reforms remains critical to achieving the fiscal objectives. Revenue mobilisation efforts have already started to yield results, with the FBR implementing priority actions under its transformation plan and developing key performance indicators to monitor progress. These priorities include strengthening taxpayer audits, expanding the use of digital invoicing and production monitoring, and enhancing the FBR’s internal governance. The newly established Tax Policy Office is developing a medium term tax reform strategy aimed at ensuring revenue neutrality and tax policy stability. In addition, efforts are underway to enhance fiscal burden sharing between federal and provincial governments and to strengthen public financial management.
STRENGTHENING POVERTY REDUCTION AND SOCIAL PROTECTION
To protect the most vulnerable from the recent elevated volatility in food and fuel prices, the authorities are aiming their efforts to providing more targeted and sustainable support to the more affected households and are strengthening the generosity, coverage, and delivery of the Benazir Income Support Program (BISP), including through inflation adjusted cash transfers, expanded beneficiary coverage, and improved payment systems. In parallel, they remain committed to scaling up federal and provincial health and education spending, consistent with programme objectives, to support human capital development and inclusive growth.
MAINTAINING AN APPROPRIATELY TIGHT AND DATA-DEPENDENT MONETARY POLICY
The State Bank of Pakistan (SBP) remains committed to keeping inflation within its target range and stands ready to raise interest rates should price pressures intensify or inflation expectations rise, including from pass through of recent volatility in global food and fuel prices.
Exchange rate flexibility should continue to serve as the primary shock absorber, including against spillovers from the conflict in the Middle East, while the SBP should ensure that the banking system remains able to accommodate import financing and other external payments amid potentially elevated balance of payments pressures.
ACHIEVING ENERGY SECTOR VIABILITY
The authorities remain committed to achieving energy sector viability and preventing a recurrence of circular debt, which is detrimental to the economy. It is critical that sustainability is maintained through timely tariff adjustments that ensure cost recovery. Moreover, energy price subsidies should be avoided, given their regressivity, high fiscal costs and distortionary impact. At the same time, the authorities remain committed to advancing structural reforms to improve efficiency, including by improving transmission and distribution, privatising inefficient generation companies, completing the transition to a competitive electricity market and facilitating the shift towards renewable energy and rationalising capacity in line with demand while ensuring grid sustainability.
DEEPENING STRUCTURAL REFORMS
The authorities are making progress in implementing broad based structural reforms aimed at strengthening governance, reducing inefficiencies and market distortions, easing excessive regulatory burdens, boosting productivity and supporting private sector development, with a view to fostering durable growth while preserving macroeconomic stability and fiscal sustainability. Advancing SOE reforms and the privatisation agenda remains central to scaling back the state’s footprint and improving service delivery, alongside efforts to reduce government intervention in commodity markets and enable private sector initiatives. The authorities are also strengthening institutional capacity and intensifying anti corruption efforts to promote inclusive growth and ensure a level playing field for businesses and investment.
BUILDING RESILIENCE TO CLIMATE CHANGE
Policies supported by the RSF, in line with national commitments — including recently implemented reforms to promote green mobility and transport decarbonisation and to strengthen climate information systems and the management of climate related financial risks — are helping to build resilience. The authorities remain committed to advancing further reforms, including enhancing water system resilience, better identifying and prioritising climate relevant spending, establishing a coordinated disaster risk financing framework and aligning energy sector reforms with national mitigation objectives.
The IMF team is grateful to the Pakistani authorities, private sector, and development partners for their hospitality during the visit to Islamabad and Karachi, and fruitful discussions.
