With $8.1bn at Stake, IMF opens critical review of Pakistan’s Economy and Reforms

2026-02-25 - 15:53

KARACHI – A delegation of International Monetary Fund led by Iva Petrova started talks with State Bank of Pakistan as South Asian nation enters critical review of its $8.1bn programme, while Finance Minister Muhammad Aurangzeb remains optimistic that reforms and tax improvements through the Federal Board of Revenue will help keep Pakistan on a stable financial path amid ongoing discussions, including the rollover of deposits from the United Arab Emirates. The third review of Pakistan’s $7 billion Extended Fund Facility (EFF) and the second review of the $1.1 billion Resilience and Sustainability Facility (RSF), together forming a critical $8.1 billion financial safety net for the country’s fragile economy. IMF mission will remain in Sindh capital Karachi throughout the week before shifting to high-level policy discussions with federal and provincial authorities. The formal engagement will open with Finance Minister Muhammad Aurangzeb, who has projected confidence, declaring the government “well-positioned” for a successful outcome. Aurangzeb defended tax performance, insisting that collections by the Federal Board of Revenue (FBR) remain on track — despite acknowledged shortfalls. The review, running until March 11, is not just a routine checkpoint. It will evaluate Pakistan’s economic performance for the half-year ending December 31, 2025, while simultaneously shaping the framework of the upcoming federal budget. In effect, the country’s fiscal roadmap for the next year is now under IMF examination. Adding urgency to the discussions is the status of the United Arab Emirates’ $2 billion deposit with Pakistan’s central bank. The deposit expired more than two months ago and has since been extended through short-term arrangements. Aurangzeb insisted there is “absolutely no issue” with the rollover, stating both sides remain in constant contact. Deputy Prime Minister and Foreign Minister Ishaq Dar echoed the assurance, saying talks with the UAE government are ongoing and that the funds would be “automatically rolled over.” Pakistan relies heavily on annual rollovers from China, Saudi Arabia, and the UAE, with a combined $12.5 billion forming a crucial component of external financing under the IMF programme. Beyond macroeconomic targets, IMF will closely examine provincial finances, especially agriculture income tax implementation and governance challenges that have reportedly caused trillions of rupees in economic losses. Procurement bodies and accountability institutions are also expected to face heightened scrutiny, particularly regarding their independence, institutional strength, operational processes, and performance standards. The power sector, long considered a structural weak point, will remain under intense focus. Recent policy shifts — affecting industrial consumers, residential fixed charges, and tariff structures created volatility. While circular debt remains within agreed targets, policymakers’ consistency is likely to be questioned. If the review concludes successfully, Islamabad stands to unlock around $1 billion under EFF and an additional $200 million under the RSF by the end of April. Last week, an IMF spokesperson acknowledged that reforms undertaken under the programme have helped stabilize Pakistan’s economy and rebuild investor confidence. But with structural reforms lagging and fiscal pressures mounting, this review could prove pivotal.