Pakistan and the International Monetary Fund (IMF) are moving closer to a staff-level agreement as discussions on the latest programme review approach completion. An agreement could clear the way for the release of around $1.2 billion under Pakistan’s $7 billion Extended Fund Facility (EFF) and the $1.4 billion Resilience and Sustainability Facility (RSF). The two sides are currently finalising the remaining details of the review after completing discussions on the main economic and fiscal parameters.
According to informed sources, Pakistan and the IMF have completed substantive discussions on the biannual review and are now working on the Memorandum of Economic and Fiscal Policies (MEFP). The document will set out the commitments and policy measures associated with the review and is expected to be finalised before the IMF mission concludes its visit. Once the staff-level agreement is reached, the process can move toward the subsequent stages required for approval and the related disbursement.
Sources said the IMF has not introduced new demands beyond adjustments required to address earlier programme slippages. The revenue target agreed under the programme has remained unchanged, with attention now shifting toward the half-year target. Pakistan’s first-quarter revenue collections exceeded the agreed target, providing some room for the authorities as discussions move toward the next stage of the fiscal programme. The focus remains on maintaining performance against the agreed fiscal objectives.
The IMF mission is expected to conclude its visit within the next couple of days after the remaining exchanges on the draft programme documents are completed. The conclusion of the discussions would represent an important step in Pakistan’s ongoing engagement with the Fund, particularly as the government works to meet the structural and fiscal commitments linked to the programme.
Energy-sector reforms remain a major component of the discussions. One of the issues under consideration is Pakistan’s plan for liquefied natural gas imports during the winter period and its potential impact on the current account targets agreed with the IMF. The government and the Fund are assessing how the import requirements can be managed while keeping external sector objectives under the programme on track.
Pakistan and the IMF have also agreed to accelerate work on targeted gas subsidies through the country’s social protection framework. Under the revised approach, subsidies are intended to become more targeted toward lower-income consumers instead of relying heavily on broad-based support mechanisms. BISP-linked subsidies for the poorest electricity consumers are expected to move toward implementation from January following the revised base tariff.
The government has also assured the IMF that it will work to reduce cross-subsidies currently borne by the industrial sector and address the growing circular debt in the gas sector. Gas-sector circular debt has reached Rs3.6 trillion, creating a significant financial burden within the energy system. The amount consists of approximately Rs1.8 trillion in principal payables, with almost an equivalent amount represented by accumulated interest and late-payment surcharges.
A major structural requirement under the IMF programme is the replacement of the existing tariff-differential and cross-subsidy arrangement with a targeted and budgeted subsidy framework for low-income consumers. Pakistan is required to complete this transition by the end of January 2027. Under the proposed framework, support for eligible consumers will be channelled through the Benazir Income Support Programme (BISP), allowing subsidies to be directed toward households identified as meeting the relevant income criteria.
The government has also committed to completing the technical linkage between electricity consumers and the National Socio-Economic Registry by the end of November. The linkage will include validity checks and is intended to help determine which consumers qualify for targeted support. The development is part of the broader effort to move away from generalised subsidies and establish a system in which government assistance is directed toward consumers who meet defined eligibility requirements.
The IMF is also seeking greater transparency in the Inland Freight Equalisation Margin (IFEM), a mechanism used to maintain uniform petroleum prices across different parts of Pakistan. Greater clarity around the mechanism forms part of the Fund’s broader focus on transparency and fiscal management within the energy sector.
The potential staff-level agreement would mark another step in Pakistan’s efforts to remain aligned with the IMF programme and secure the associated financing. The expected disbursement of around $1.2 billion under the EFF and RSF would provide additional external financing support, while progress on revenue collection, energy-sector reforms, targeted subsidies and circular debt will remain important for maintaining programme performance. The outcome of the ongoing review will depend on the completion of the remaining policy documentation and the IMF’s assessment of Pakistan’s commitments and implementation progress.
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