In line with the agreement, the Pakistani government has reiterated its commitment to pursuing structural reforms. These include reducing public debt, strengthening tax systems, and improving public financial management.

The International Monetary Fund (IMF) and Pakistan have successfully reached a staff-level agreement on the first review of Pakistan’s Extended Fund Facility (EFF) and a new arrangement under the Resilience and Sustainability Facility (RSF), according to an official IMF statement released on Wednesday. The agreement, which is subject to the approval of the IMF’s Executive Board, totals $1.3 billion for climate resilience and sustainability efforts, alongside $1 billion under the EFF, bringing Pakistan’s total disbursements under the program to $2 billion.

The 28-month RSF aims to address Pakistan’s vulnerabilities to climate-related shocks and promote long-term sustainability. Specific objectives include enhancing public investment planning, improving water usage efficiency, and promoting green energy initiatives. The EFF-supported program, meanwhile, focuses on fiscal consolidation, monetary policy for inflation control, and energy sector reforms to ensure long-term viability.

According to the IMF, Pakistan has made notable progress in restoring macroeconomic stability despite global challenges. Over the past 18 months, the country has achieved its lowest inflation rates since 2015, improved financial conditions, narrowed sovereign spreads, and stabilized external balances. However, the IMF also warned that risks remain, including potential macroeconomic policy slippages, geopolitical shocks to commodity prices, and climate-related challenges.

Resilience and Sustainability Facility (RSF)

In line with the agreement, the Pakistani government has reiterated its commitment to pursuing structural reforms. These include reducing public debt, strengthening tax systems, and improving public financial management. Additionally, the government plans to maintain a tight monetary policy to anchor inflation and rebuild foreign exchange reserves. The energy sector will undergo reforms to reduce costs, improve distribution efficiency, and lower circular debt through timely tariff adjustments and expanded adoption of renewable energy.

Finance Minister Ishaq Dar highlighted the government’s focus on fiscal consolidation and transparent governance. “Our efforts will ensure that Pakistan remains on track to achieve its macroeconomic stability targets while prioritizing health, education, and social protection initiatives,” he said.

The RSF’s primary objective is to enhance Pakistan’s climate resilience. Key areas of focus include strengthening disaster resilience through improved public investment processes, better water resource management, and the development of climate-related risk disclosure mechanisms. The government’s plans also aim to align energy sector reforms with climate mitigation targets and promote green mobility to address pollution and health concerns.

IMF mission chief Nathan Porter emphasized the importance of these reforms in achieving long-term growth and sustainability. “Pakistan’s commitment to the RSF and its broader reform agenda is essential for addressing vulnerabilities and ensuring resilience against climate shocks,” Porter said.

Challenges to Climate Adaptation

Despite recent progress, Pakistan’s economy faces significant challenges. Global economic uncertainties, tightening financial conditions, and the ongoing risks posed by climate change could undermine stability. The IMF stressed the importance of Pakistan’s continued adherence to its reform agenda, warning that any deviation could jeopardize hard-won gains.

The government’s focus on fiscal reforms includes plans to achieve an underlying primary surplus of at least 1.0 per cent of GDP in FY25 and to sustain consolidation in the FY26 budget. Additionally, amendments to provincial Agriculture Income Tax (AIT) regimes aim to enhance tax equity and broaden the revenue base, though effective implementation remains crucial.

The energy sector remains a critical area for reform. Recent tariff adjustments have reduced the sector’s circular debt, but further measures are needed to ensure long-term viability. The government plans to improve distribution efficiencies, integrate captive power into the national grid, and prioritize renewable energy projects. Privatization of inefficient generation companies and the enhancement of the transmission system are also key priorities.

The RSF-supported reforms will help Pakistan adapt to climate-related risks and promote sustainable development. These efforts include:

• Enhancing intergovernmental coordination on disaster financing.
• Improving water usage efficiency through better pricing mechanisms.
• Expanding the climate information architecture to disclose financial and corporate climate risks.
• Supporting green mobility initiatives to mitigate pollution.

These measures are designed to address both immediate and long-term climate challenges, fostering resilience and sustainability.

IMF’s Perspective and Next Steps

The IMF praised Pakistan’s progress over the past 18 months, noting improvements in macroeconomic stability and investor confidence. However, it also highlighted the need for vigilance against downside risks, such as pressures to ease fiscal and monetary policies prematurely. “Staying the course with these reforms is critical to achieving stronger, inclusive, and sustained growth,” Porter said.

The staff-level agreement will now be presented to the IMF’s Executive Board for approval. Upon approval, Pakistan will receive $1 billion under the EFF and $1.3 billion under the RSF. The IMF team expressed gratitude to Pakistani authorities, the private sector, and development partners for their hospitality and productive discussions during the February 24–March 14 mission to Karachi and Islamabad.

The IMF-Pakistan agreement represents a significant step towards economic stability and climate resilience. By adhering to its reform commitments and leveraging RSF funding, Pakistan aims to build a sustainable future while addressing critical challenges in fiscal policy, energy, and climate adaptation. The road ahead requires steadfast implementation and collaboration, but the progress achieved thus far offers a promising foundation for long-term growth.