akistan is set to receive another $1.2 billion as the International Monetary Fund has approved the completion of the second review of the 37-month $7 billion Extended Fund Facility programme and the first review of the Resilience and Sustainability Facility.

The decision by the IMF Executive Board allows Pakistan immediate access to approximately $1 billion under the EFF and around $200 million under the RSF. This brings total disbursements under the two arrangements to about $3.3 billion, providing a significant boost to Pakistan’s fiscal space and external liquidity at a critical time. These approvals emphasise the authorities’ strong commitment to implementing IMF’s agenda despite severe disruptions caused by recent floods and a challenging global economic environment.

The EFF, approved on September 28, 2024, is aimed at strengthening macroeconomic stability, rebuilding confidence and enabling sustainable growth. The EFF has focused on key policy priorities, including the restoration of fiscal discipline, broadening the tax base, strengthening public finances, improving public service delivery, reforming state-owned enterprises, enhancing competition, raising productivity and boosting private sector-led growth.

The EFF programme has delivered significant fiscal results, with the primary fiscal balance excluding grants reaching 1.3 percent of GDP in fiscal year 2025, in line with targets. Government revenues and grants rose to 15.9 percent of GDP, up from 12.7 percent in FY 2024, whereas expenditure increased to 21.2 percent of GDP. As a result, the budget deficit narrowed to 5.4 percent of GDP, down from 6.8 percent the previous year, reflecting strong fiscal management despite extraordinary flood-related spending.

The external debt position has also strengthened. The gross foreign exchange reserves increased to $14.5 billion at the end of FY 2025, up from $9.4 billion a year earlier. This reflects progress in rebuilding international reserve buffers and enhancing the country’s ability to manage external pressures.

The consistent macroeconomic policies have also contributed to stabilising inflation expectations. The consumer prices increased due to disruptions in food supply caused by floods; inflation is projected to moderate over time. The average consumer price inflation for FY 2025 stood at 4.5 percent, compared with 23.4 percent in FY 2024, whereas end of period inflation declined to 3.2 percent from 12.6 percent the previous year.

The real GDP at factor cost grew by 3 percent in FY 2025, compared with 2.6 percent in FY 2024, and is projected to expand further to 3.2 percent in FY 2026. The unemployment is expected to fall from 8 percent in FY 2025 to 7.5 percent in FY 2026, signaling gradual improvement in the labour market.

The RSF, approved in May 2025 for 28 months, complements the EFF by focusing on economic and climate resilience. The RSF provides critical support for reforms aimed at reducing exposures to natural disasters and building sustainable growth.

The RSF underlines improving natural disaster response coordination between federal and provincial governments, enhancing the efficiency of scarce water resource use, integrating climate considerations into investment planning and budgeting and strengthening the information architecture and disclosure of climate-related risks by banks and corporations.

The recent floods have underscored the urgency of implementing these measures. By facilitating these reforms, the RSF is helping Pakistan not only respond to immediate challenges but also mitigate future climate-related economic and fiscal risks.

Pakistan’s strong performance under both programmes has reinforced macroeconomic stability and policy credibility. The State Bank of Pakistan’s tight monetary stance has contained inflation, supported exchange rate flexibility and deepened the interbank foreign exchange market.

Financial regulations have strengthened banking sector, whereas capital market development is broadening financing options. Similarly, broad money growth slowed to 13.7 percent in FY 2025 from 16 percent; private sector credit rose 12 percent, reflecting improved access to financing.

The energy sector reforms remain critical to strengthening competitiveness and fiscal sustainability. The government has undertaken timely power tariff adjustments, helping reduce both the stock and flow of circular debt.

The efforts are ongoing to reduce electricity production and distribution costs sustainably and address weaknesses in power and gas sectors. These reforms are essential not only for fiscal consolidation but also for enhancing industrial competitiveness and attracting private investment. The structural reforms beyond fiscal and monetary frameworks are showing significant improvement.

The Governance and Corruption Diagnostic Analysis (November 2025) by the IMF marks a key step toward enhancing transparency and accountability in public institutions. The state-owned enterprise reforms and privatisation efforts remain a priority, alongside measures to improve the business environment. The improvement of economic data quality is critical for informed policy and investment decisions. The pursuit of these reforms aims to improve growth potential, attract private investment and strengthen long-term economic resilience.

The authorities’ focus on social safety nets and human capital development is closely aligned with the broader reform agenda. Strengthening social protection programmes ensures that vulnerable populations are supported, particularly in the aftermath of natural disasters.

Investments in education, health and skills development are intended to enhance human capital, improve labour productivity and facilitate sustainable economic growth. By integrating social and human development priorities with fiscal and structural reforms, Pakistan is working to achieve more inclusive and resilient growth.

The combination of EFF and RSF reforms demonstrates a holistic approach to stabilising the economy, strengthening public finances and addressing long-term challenges. The government’s continued focus on macroeconomic stability, structural reforms, fiscal consolidation, energy sector improvements, social protection and climate resilience, reflects a holistic strategy for sustainable growth.

The real GDP growth is projected to rise to 3.2 percent in FY 2026, whereas the main primary balance excluding grants is expected to reach 1.6 percent of GDP. The total general government debt including IMF obligations is projected at 72.4 percent of GDP, slightly down from 72.9 percent in FY 2025. The domestic debt is expected to decline to 47.1 percent of GDP.

The current account balance is projected at negative 0.6 percent of GDP. The foreign direct investment is expected to remain stable at 0.5 percent of GDP. Gross reserves are projected to rise to $17.8 billion, covering 2.7 months of the next year’s imports of goods and services, further enhancing external resilience.

The export sector, particularly textiles, remains a key driver of foreign exchange earnings. The exports are valued at $17.3 billion for FY 2025. The main markets include the European Union, United States and United Arab Emirates.

Sustained reforms and investment in productivity, infrastructure and competitiveness are necessary to maintain export growth, improve the trade balance and strengthen the external position. These measures, coupled with enhanced macroeconomic stability and financial sector development, are critical to ensuring sustainable growth and resilience.

The IMF’s approval of the second review under the EFF and the first review under the RSF highlights Pakistan’s strong reform implementation and commitment to a comprehensive policy agenda.

The combination of fiscal consolidation, structural reforms, energy sector adjustments, social protection enhancements and climate resilience measures represents a coherent approach to achieving sustainable and inclusive growth. These policy measures are critical for not only addressing current economic challenges but also for building long-term resilience in the face of natural disasters, global economic challenges and domestic development needs. Unremitting implementation of these reforms will be essential to ensure macroeconomic stability, attract investment, improve competitiveness and secure a sustainable growth trajectory for Pakistan in the years ahead.

Dr Ikramul Haq, writer and advocate, is an adjunct teacher at Lahore University of Management Sciences.

Abdul Rauf Shakoori is a corporate lawyer based in the USA