ISLAMABAD – Pakistan secured a breakthrough with the International Monetary Fund (IMF) after reaching Staff-Level Agreement, opening the way for a $1.2 billion financial injection but also putting fresh pressure on the government to end fuel subsidies and push ahead with difficult economic reforms.
The agreement, reached after negotiations held from September 23 to October 7, will now go before the IMF Executive Board for approval. Once cleared, Pakistan is expected to receive $1 billion under the Extended Fund Facility (EFF) and another $210 million under the Resilience and Sustainability Facility (RSF).
With latest disbursement, the combined amount released to Pakistan under the two IMF programmes will rise to approximately $5.7 billion following board approval.
Fuel Subsidy
While the agreement provides much-needed financial support, the Sharif-led government faces a politically and economically sensitive task, phasing out fuel subsidies.
Experts see Staff-Level Agreement positive development for Pakistan, particularly because it was reached without significant delays. However, they identified the fuel subsidy requirement as one of the major challenges ahead. Removing the subsidy could prove difficult because the global oil price crisis has not yet subsided. Completely eliminating the subsidy or placing it under a strict time-bound mechanism could therefore create additional pressure.
The government might formulate its own domestic policy to manage the issue. The fuel subsidy issue is only one part of the reform agenda agreed during the latest negotiations.
IMF reviewed Pakistan’s economic performance, fiscal position, energy sector, tax collection, social protection system and structural reform programme during the discussions. Fund said that despite a difficult external environment, implementation of the programme remained broadly on track.
Pakistan recorded around 4% real GDP growth during the first three quarters of fiscal year 2026, while full-year economic growth has been estimated at 3.6%. However, inflation remains a major concern. The IMF estimated Pakistan’s inflation rate at approximately 10.3% in September 2026.
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At the same time, the country’s overall foreign exchange reserves had climbed to around $21.5 billion by the end of September, providing some improvement on the external financing front.
Under this agreement, Pakistan reaffirmed its commitment to strengthening macroeconomic stability and public finances while bringing inflation back within the State Bank’s target range. The energy sector is another major area of concern.
IMF called for faster reforms to reduce financial losses in the electricity and gas sectors and bring circular debt under control. The government has also agreed to strengthen tax collection by improving tax policy and administration while continuing efforts to improve fiscal discipline.
Reforms involving state-owned enterprises are also expected to remain part of Pakistan’s obligations under the programme. Alongside fiscal tightening and structural reforms, the IMF has stressed the need to strengthen Pakistan’s social protection system.
The latest fourth review between Pakistan and the IMF was completed relatively smoothly. IMF Executive Board approval generally follows once a Staff-Level Agreement has been reached. The agreement does not mean Pakistan’s reform obligations are over.
The government will still have to implement a series of measures, including ending fuel subsidies and carrying out reforms involving state-owned enterprises.
For Pakistan, the latest IMF agreement therefore brings immediate financial relief but also signals another demanding phase of economic reforms, with the future of fuel subsidies emerging as one of the most closely watched issues for consumers and policymakers alike.
