The International Monetary Fund (IMF) recently concluded its first review mission in Pakistan, from February 24 to March 14, 2025, assessing the $7 billion Extended Fund Facility (EFF) and exploring a new Resilience and Sustainability Facility (RSF) deal.
The mission ended on a hopeful note, with the IMF signaling “significant progress” toward a Staff Level Agreement (SLA) for both programs—key to unlocking a $1 billion tranche and more. As virtual policy talks continue, this update offers a mix of optimism, uncertainty, and familiar challenges for Pakistan’s economic future.
The IMF wrapped up its initial review mission in Pakistan, focusing on the $7 billion Extended Fund Facility (EFF) program and exploring a potential new deal under the Resilience and Sustainability Facility (RSF). On the final day, the IMF shared an encouraging update: substantial strides had been made toward securing a Staff Level Agreement (SLA) for both the EFF and RSF. This step is crucial to unlock a $1 billion installment—plus any additional funds tied to the RSF—with final talks set to continue online in the days ahead.
Three key takeaways stand out from this development. First, the IMF’s nod to “significant progress” feels like a breath of fresh air. Rewind to October 2022 through June 2023, and you’ll recall a starkly different tone—no such optimism was voiced, the program expired, and a stopgap $3 billion, nine-month arrangement was hashed out instead. This time, the positive signal hints at a smoother path forward.
Second, a bit of a puzzle remains: Are the EFF and RSF intertwined? In other words, does clinching an SLA for the EFF pave the way for RSF approval, or can they stand apart? Adding to the mix, Pakistan’s financial lifeline from allies—China, Saudi Arabia, and the UAE—comes into play. These countries have parked over $10 billion in the State Bank of Pakistan (SBP) for a year to bolster reserves, with a promise to extend if Pakistan sticks to an IMF program. That commitment hinges on timely SLAs, which are also a green light for the IMF to approve the program and release each tranche.
Lastly, the IMF highlighted that “policy discussions” will carry on virtually. That’s distinct from the technical nitty-gritty typically tackled with underperforming sectors like energy and taxation, or the stalled efforts to reform state-owned enterprises and push privatization. Policy talks, led by Finance Minister Muhammad Aurangzeb and SBP Governor Jameel Ahmed, signal a higher-level focus.
Speaking of the SBP, its Monetary Policy Committee met on March 10, 2025, and surprised many by holding the policy rate steady despite a remarkably low Consumer Price Index of 1.5%. Analysts had expected a cut, but the IMF seemed to approve, noting the “maintenance of sufficiently tight monetary policy to keep inflation in check.” On the fiscal side, under the Finance Ministry’s watch, the IMF praised efforts toward “planned fiscal consolidation to sustainably lower public debt.” Yet, that praise comes with a catch—a 601 billion rupee shortfall in Federal Board of Revenue (FBR) collections over the first seven months of the fiscal year. This gap persists despite heavier taxes on salaried workers, which shrank demand and slowed growth, while big fish—like untaxed traders, real estate players, and farmers—slip through the net. The much-hyped Taajir Dost Scheme fizzled out, real estate tax plans faltered, and provincial farm income tax laws hit snags. Meanwhile, reliance on indirect taxes, which hit the poor harder than the rich, has pushed poverty levels to a staggering 44%.
For years, experts have pressed the government to pitch the IMF a bold idea: slash current spending (up 21% in this year’s budget) instead of obsessing over fiscal tightening that props up elite sectors. Yet, the focus stays on revenue grabs—like the recent hike in the petroleum levy. Rather than passing lower global oil prices to consumers, the government pocketed the difference as an indirect tax.
The IMF did call for speeding up cost-cutting reforms to shore up the energy sector. In a related move, the Prime Minister’s Office announced on March 15 that the petroleum levy bump would fund a promised electricity tariff cut, set to be unveiled on March 23. But here’s the rub: Wouldn’t consumers have been better off if the levy hadn’t risen in the first place? Some speculate the IMF okayed the tariff drop, factoring in renegotiated deals with Independent Power Producers and cheaper fuel imports.
Skeptics, however, point to the energy sector’s 2.5 trillion rupee circular debt. The government aims to borrow 1.23 trillion from banks to chip away at it, hoping to ease interest costs baked into consumer bills. But banks, already deep in the power sector, are reportedly wary of lending more—especially below the benchmark KIBOR rate. The IMF might be taking a cautious “let’s see” stance here.
And then there’s the elephant in the room: structural reforms are crawling along. As with past IMF programs, the burden falls squarely on ordinary Pakistanis—higher income and sales taxes—while spending cuts remain elusive. That pattern has to break, and soon. Pakistan stands at a crossroads with the IMF’s cautious optimism lighting the way, yet the road ahead is far from smooth. While progress on the EFF and RSF hints at stability, unanswered questions—like the EFF-RSF link and stalled structural reforms—linger. The burden of higher taxes continues to weigh on citizens, while spending cuts remain a distant hope. For real change, the government must shift gears, easing the load on the public and delivering on long-overdue reforms before the next IMF chapter unfolds.