IMF Review Underway: Pakistan’s Economic Future Hangs in the Balance
Karachi and Islamabad are currently at the center of crucial discussions as an International Monetary Fund (IMF) mission, led by Iva Petrova, conducts the third review of Pakistan’s $7 billion Extended Financing Facility (EFF) and the second review of the $1.1 billion Resilience and Sustainability Facility (RSF). The outcome of these talks, expected to conclude around March 11th, will significantly impact Pakistan’s economic trajectory.
Navigating Rollovers and Reserves
A key focus of the review centers on Pakistan’s ability to manage its external financing needs. The government has expressed confidence regarding the rollover of a $2 billion deposit from the United Arab Emirates (UAE), which expired over two months ago and has been subject to short-term extensions. Pakistan relies heavily on these annual rollovers – totaling $12.5 billion from China, Saudi Arabia, and the UAE – to meet its financial obligations under the EFF.
Budget Preparations and Structural Reforms
Beyond immediate financing, the IMF review will delve into preparations for the upcoming budget. Discussions will encompass performance for the half-year ending December 31, 2025, and establish broad contours for the next fiscal year. This includes a detailed examination of provincial finances, particularly concerning agriculture income tax and governance challenges, with a focus on identifying and addressing weaknesses causing substantial economic losses.
Procurement and accountability agencies will face increased scrutiny, with attention paid to their independence, capacity, and performance. The IMF is too emphasizing the need for structural reforms to drive long-term economic transformation.
Performance Assessment: Strengths and Weaknesses
As of December 2025, Pakistan has largely met the quantitative performance criteria set by the IMF. But, the country is lagging in indicative targets and structural benchmarks, potentially impacting future program implementation. A recent favorable ruling by the Federal Constitutional Court regarding the super tax is expected to mitigate a revenue shortfall.
The power sector, marked by recent policy fluctuations, will also be under close observation, despite circular debt remaining within target ranges. Macroeconomic indicators for the current quarter will also be reviewed.
Potential Disbursement and Key Indicators
Successful completion of the review could unlock approximately $1 billion under the EFF and $200 million under the RSF by the end of April. Current projections suggest Pakistan is likely to meet most quantitative performance indicators, although net international reserves may fall slightly short of the $7 billion benchmark for September 2025 and the $6.5 billion benchmark for December 2025. The central bank’s net domestic assets are also estimated to be below target ceilings.
The IMF has acknowledged that policy efforts undertaken by Pakistan under the EFF have contributed to economic stabilization and a rebuilding of confidence.
FAQ
Q: What is the EFF?
A: The Extended Fund Facility is an IMF lending program designed to provide sustained financial assistance to countries facing balance of payments difficulties.
Q: What is the RSF?
A: The Resilience and Sustainability Facility provides financial assistance to help countries build resilience to long-term risks, including climate change.
Q: What happens if Pakistan doesn’t complete the IMF review?
A: Failure to complete the review could jeopardize future disbursements of funds and potentially worsen Pakistan’s economic situation.
Q: What is a ‘rollover’ in the context of these deposits?
A: A rollover refers to the extension of a deposit’s term by the depositing country, allowing Pakistan to continue using those funds without immediate repayment.
Did you know? Pakistan recorded a current account surplus in FY25 – the first in 14 years – a positive sign highlighted by the IMF.
Pro Tip: Understanding the interplay between Pakistan’s external debt, IMF programs, and geopolitical factors is crucial for assessing the country’s long-term economic outlook.
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