The International Monetary Fund (IMF) has concluded its 2026 Article IV consultation with Pakistan and reached a staff-level agreement that could unlock $1.2 billion in funding, subject to approval by the Fund’s Executive Board. However, questions remain over whether the country’s economic growth is strong enough to reduce poverty and expand exports.
The IMF mission spent two weeks in Islamabad to complete the consultation. The latest round of talks concluded without the prolonged negotiations seen in March, when discussions shifted online and failed to produce an immediate agreement. Funding was subsequently approved by the Executive Board in May.
The smoother conclusion of the recent discussions reflects the fiscal commitments already incorporated into the current budget, which targets a primary surplus equivalent to 2 per cent of gross domestic product (GDP). The IMF is now assessing progress against those commitments, while the continuation of the programme has provided some reassurance to financial markets.
The IMF has acknowledged Pakistan’s efforts to manage the economic impact of the conflict in the Middle East, noting that government policies have helped maintain macroeconomic stability.
Foreign exchange reserves stand at approximately $21.5 billion, while inflation has declined from its peak in May. However, inflation reached 10.3 per cent in September, remaining above the State Bank of Pakistan’s medium-term target range.
Economic growth also remains a concern. Pakistan’s economy expanded by 3.6 per cent last year, while annual population growth of nearly 2 per cent has limited the improvement in per capita income.
According to the World Bank, Pakistan’s poverty rate stood at approximately 42.4 per cent in 2025. The institution also estimated that weak economic growth had pushed an additional 1.9 million people below the poverty line in a single year.
Pakistan’s external trade figures highlight the difficulties facing the country’s productive sectors.
Goods exports declined by around 6 per cent to $30.1 billion, with textiles contributing $17.9 billion. Meanwhile, imports increased by 8 per cent to $69.8 billion, widening the merchandise trade deficit to $39.6 billion.
Growth in information technology services helped bring total exports close to $40 billion. However, stronger IT exports have yet to offset the broader weakness in merchandise exports, underscoring the need to improve manufacturing capacity and competitiveness in international markets.
The IMF has reiterated several policy recommendations, including gradually phasing out the government’s fuel support scheme, which it considers costly and insufficiently targeted.
Implementing the measure could prove politically challenging, particularly if it increases the financial burden on consumers. The Fund has also called for timely tariff adjustments to prevent a renewed accumulation of circular debt in the energy sector.
Other priorities include developing a medium-term tax strategy, encouraging private-sector participation in electricity distribution, improving the governance of state-owned enterprises (SOEs) and advancing privatisation.
Many of these recommendations have featured in previous IMF programme reviews, raising questions about the pace of implementation and the extent to which repeated commitments have translated into lasting structural changes.
The latest agreement is expected to provide Pakistan with additional financial support once the IMF Executive Board approves the disbursement. However, the longer-term challenge extends beyond meeting fiscal targets and maintaining macroeconomic stability.
Pakistan still needs to demonstrate that its economy can generate stronger and more inclusive growth, reduce poverty and increase export earnings. Progress on these fronts will be crucial to improving living standards, strengthening external finances and reducing the country’s reliance on external financing.
