The International Monetary Fund has formally commended the State Bank of Pakistan for its proactive and vigilant monetary policy stance, recognizing the central bank’s timely interventions to stabilize inflation expectations. This praise comes at a critical juncture as the global economy faces volatility from rising commodity prices and heightened external uncertainties fueled by regional conflicts. Following the successful completion of the third review under the Extended Fund Facility and the second review of the Resilience and Sustainability Facility, the IMF Executive Board has sanctioned an immediate disbursement of approximately 1.32 billion dollars. This latest tranche brings the total financial support provided under the dual programs to nearly 4.8 billion dollars, reinforcing the country’s external liquidity.
Of the newly approved funds, approximately 1.1 billion dollars are allocated under the EFF arrangement, while 220 million dollars are provided through the RSF framework. The IMF specifically lauded the SBP for maintaining an appropriately tight monetary policy, which has been instrumental in anchoring inflation expectations amidst a challenging global backdrop. However, the lender cautioned that the central bank must remain alert to potential second-round effects, where higher energy and commodity costs could eventually bleed into domestic wages and public inflation perceptions. Maintaining this balance is seen as vital for preserving the hard-won macroeconomic stability achieved over the last fiscal year.
A core component of the IMF’s recommendations involves the continued flexibility of the exchange rate. The Fund described a market-determined exchange rate as the primary shock absorber for the national economy, essential for protecting foreign exchange reserves as they continue to be rebuilt. Current data shows a positive trend in this area, with gross reserves climbing to 16 billion dollars by the end of December 2025, up from 14.5 billion dollars in June of the same year. To further strengthen this position, the IMF has urged the authorities to pursue a medium-term liberalization of the foreign exchange market and to ensure that the banking sector remains robustly capitalized, with a specific focus on addressing capital inadequacies within microfinance institutions.
On the broader economic front, the reform program has shown significant signs of progress. The IMF noted that GDP growth gained momentum during the first nine months of the fiscal year 2026, while the current account remained largely balanced and inflation was kept within manageable limits. Fiscal performance has also been categorized as strong, with the government on track to meet its primary surplus target of 1.6 percent of GDP. Despite these successes, the Fund warned that there is no room for complacency. Sustainable long-term growth will require a continued commitment to disciplined macroeconomic policies and a faster pace of structural reforms to shield the domestic economy from future external shocks.
Future priorities outlined by the IMF include more aggressive fiscal consolidation through broadened taxation and improved revenue mobilization. The lender emphasized the necessity of aligning energy prices—specifically electricity, gas, and fuel—with their actual costs to ensure the financial viability of the power sector. While these adjustments are necessary, the IMF supports the use of targeted subsidies to protect the most vulnerable segments of the population. Additionally, the Fund is pushing for accelerated reforms in state-owned enterprises, increased privatization efforts, and more rigorous anti-corruption measures to improve the overall business climate and remove market distortions.
The Resilience and Sustainability Facility is also playing a pivotal role in preparing the country for climate-related challenges. According to the IMF, reforms under this program are helping the state integrate climate considerations into public investment planning and enhance disaster response mechanisms. This includes improving water resource management and encouraging climate-related financial disclosures by corporate and banking entities. Deputy Managing Director Nigel Clarke noted that while the implementation of the reform agenda has successfully rebuilt fiscal buffers, the country must maintain its policy discipline to foster higher and more sustainable growth in the medium term.
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