Pakistan: Despite a $1.2 billion tranche, the IMF highlights vulnerabilities and reform lapses in Pakistan

Pakistan: Despite approving new disbursements of roughly $1.2 billion under its bailout programs, the International Monetary Fund (IMF) has expressed serious concerns about Pakistan’s economic management and reform record, cautioning about the dangers of policy slippages, weak institutions, and ongoing structural vulnerabilities.

Following the completion of the first review under the Resilience and Sustainability Facility (RSF) and the second review of Pakistan’s Extended Fund Facility (EFF) by the IMF Executive Board, the Fund announced in a report released Thursday that it has authorized an immediate disbursement of approximately $200 million under the RSF and approximately $1 billion under the EFF.

However, the clearance was accompanied with a “request for a waiver of nonobservance of a performance criterion,” highlighting persistent deficiencies in Pakistan’s adherence to program obligations.

Although Pakistan’s authorities had shown “strong program implementation,” the IMF pointed out that the economy was still vulnerable to serious risks and needed constant discipline to prevent reversals.

Maintaining macroeconomic stability and promoting reforms to fortify public finances, boost competition, increase productivity and competitiveness, support the social safety net and human capital, reform SOEs, and improve public service delivery and energy sector viability continue to be the main policy priorities, according to the IMF.

The IMF’s long-standing worries about persistent losses, inefficiencies, and fiscal drains that have repeatedly hampered Pakistan’s stabilization efforts are reflected in the reference to state-owned businesses and the energy sector.

Program monitoring depends on comprehensive and ongoing reporting by Pakistani authorities, such as the State Bank of Pakistan, the Ministry of Finance, and other institutions, the IMF said in its staff report. It also cautioned that “any non-observance of continuous PCs” must be reported right once.

Pakistan’s significant debt load and dependence on outside funding were also brought to the notice of the IMF. According to the report’s tables, the overall public debt is over $307 billion, of which over one-third is foreign debt, and a significant portion of multilateral liabilities are IMF commitments.

The Fund acknowledged improvements but made it clear that gains are still brittle.

The IMF said that although “fiscal performance has been strong, with a primary surplus of 1.3% of GDP achieved in FY25, in line with targets,” inflation had increased, “reflecting the impact of the floods on food prices,” and household pressures remained severe.

The IMF emphasized that, especially in a difficult international context, Pakistan’s economic recovery remains susceptible to shocks and policy reversals.

The IMF warned that “the recent floods moderately dampen the outlook for FY26,” but said that “continued strong policy implementation has helped Pakistan weather several shocks this year.”

The Fund cautioned that Pakistan’s frequent vulnerability to natural catastrophes posed long-term economic risks and emphasized the need of changes related to climate resilience.

The IMF said that the RSF is supporting work in this area and that the recent floods underscored the need to move quickly on climate-related reforms to increase resilience to Pakistan’s recurrent natural catastrophes.

The IMF said that cautious macroeconomic management is still required to improve foreign currency reserves over the medium term, even if they were restored to $14.5 billion at the end of FY25, up from $9.4 billion the year before.

Concerns over Pakistan’s persistent dependence on foreign bailouts, poor implementation of reforms, and structural economic fragilities—all of which have an impact on regional stability and growth—are reaffirmed for India and the region by the IMF’s assessment.

The 28-month RSF was authorized in May 2025, whereas Pakistan’s 37-month EFF was approved in September 2024. The programs’ combined goals are to stabilize Pakistan’s economy, boost reforms, and rebuild confidence, but the IMF’s most recent report makes it abundantly clear that continued compliance and reform momentum are still vital.

Since the late 1980s, Pakistan has sought assistance from the IMF more than 20 times, a reflection of its ongoing balance-of-payments issues, limited revenue bases, and ineffective governance. India has often maintained in international fora that repeated bailouts without significant structural reform have not produced long-lasting stability.

The IMF’s most recent cautions highlight the fact that Pakistan’s economic problems are still unresolved despite more funding, and ongoing monitoring will continue to be crucial to the program’s next evaluations.