IMF okays $2.4bn for Pakistan despite India’s objections

ISLAMABAD: New Delhi’s hectic lobbying to obstruct the approval of loan to Pakistan by the IMF blew up in its face on Friday when the Fund’s Executive Board approved the release of second tranche of $1 billion under $7 billion Extended Fund Facility (EFF) and also approved a fresh facility of $1.4 billion under the Resilience Sustainability Facility (RSF).

New Delhi made all-out efforts to block the approval of loan and even withdrew its executive board member six months before the end of his tenure but all its underhand tactics cut no ice with the Fund.

The Executive Board met in Washington, DC, to consider Pakistan’s first review under the Extended Fund Facility, Request for Modification of Performance Criteria and Request for an Arrangement under the Resilience and Sustainability Facility. With augmentation, the total size of loans under EFF and RSF increased up to $8.3 billion from earlier $7 billion.

Pakistan and the IMF had struck a staff level agreement in March 2025 for completion of the first review and release of second tranche worth $1 billion under EFF arrangement. Pakistan also successfully negotiated RSF of $1.3 billion for 28 months. Under RSF, Pakistan agreed to slap carbon levy, introduce Electric Vehicle (EV) policy, water pricing and placement of scorecard for approving climate resilient development projects. In totality, Pakistan is expected to receive $1.2 billion from the IMF within next couple of days.

The IMF’s team is scheduled to visit Pakistan from May 14 to 22 for holding consultations on the upcoming budget for 2025-26 but keeping in view the Pak-India tensions, it is not yet confirmed whether the venue may be changed from Islamabad to Doha/Dubai.

With the approval of this tranche from the IMF, the government has clinched stability on the economic front till the next review of the Fund expected in October 2025.

According to the IMF statement issued Friday night, the IMF Executive Board completed the first review under the Extended Fund Facility (EFF) Arrangement, allowing the authorities to draw the equivalent of about $1 billion. The authorities have demonstrated strong program implementation, contributing to improving financing and external conditions, and a continuing economic recovery. Moving forward, policy priorities will include advancing reforms to strengthen competition, raise productivity and competitiveness, reform SOEs, improve public service provision and energy sector viability, and build climate resilience.

The Executive Board also approved the authorities request for an arrangement under the Resilience and Sustainability Facility (RSF), which will support Pakistan’s efforts for building economic resilience to climate vulnerabilities and natural disasters, with access to around $1.4 billion.

“Today, the Executive Board of the International Monetary Fund (IMF) completed the first review of Pakistan’s economic reform program supported by the EFF Arrangement. This decision allows for an immediate disbursement of around $1 billion (SDR 760 million), bringing total disbursements under the arrangement to about $2.1 billion (SDR 1.52 billion).

“In addition, the IMF Executive Board approved the authorities’ request for an arrangement under the Resilience and Sustainability Facility (RSF), with access of about US$1.4 billion (SDR 1 billion). Pakistan’s 37-month EFF was approved on September 25, 2024, and aims to build resilience and enable sustainable growth. Key priorities include (i) entrenching macroeconomic sustainability through consistent implementation of sound macro policies, including rebuilding international reserve buffers and broadening of the tax base; (ii) advancing reforms to strengthen competition and raise productivity and competitiveness; (iii) reforming SOEs and improving public service provision and energy sector viability; and (iv) building climate resilience.

“Pakistan’s policy efforts under the EFF have already delivered significant progress in stabilizing the economy and rebuilding confidence, amidst a challenging global environment.

“Fiscal performance has been strong, with a primary surplus of 2.0 percent of GDP achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 percent of GDP.

“Inflation fell to a historic low of 0.3 percent in April, and progress on disinflation and steadier domestic and external conditions have allowed the State Bank of Pakistan to cut the policy rate by a total of 1100 bps since June 2025.

“Gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term.

The RSF will support the authorities’ efforts to reduce vulnerabilities to natural disasters and to build economic and climate resilience.

In his statement, Nigel Clarke, Deputy Managing Director and Chair, states, “Pakistan has made important progress in restoring macroeconomic stability despite a challenging environment.

“Since the approval of the Extended Fund Facility, the economy continues to recover, with inflation sharply lower and external buffers notably stronger. Risks to the outlook remain elevated; however, particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities. Against this backdrop, the authorities need to maintain sound macroeconomic policies and accelerate reforms to safeguard the macroeconomic gains and underpin stronger and sustainable, private sector-led medium-term growth. “The steadfast implementation of the FY2025 budget and the passage of key fiscal reforms, notably the Agricultural Income Tax, underpin the process of rebuilding policy making credibility. Continuing to mobilize greater revenue from undertaxed sectors and the noncompliant will make the tax system more equitable and efficient. This, combined with federal and provincial spending discipline, will strengthen sustainability, build resilience, and reduce the public sector’s crowding out of private credit.

“Timely implementation of power tariff adjustments has helped reduce the stock and flow of circular debt. Meanwhile, cost-side reforms are showing early signs of success but need to be accelerated to safeguard the energy sector’s viability and improve Pakistan’s competitiveness. “The State Bank of Pakistan’s (SBP) tight monetary policy stance has been pivotal in reducing inflation to historic lows. Monetary policy should remain appropriately tight and data-dependent to ensure inflation is anchored within the SBP’s target range. A more flexible exchange rate will facilitate the adjustment to external and domestic shocks, aiding the rebuilding of reserves. Prompt action to address undercapitalized financial institutions and vigilance over the financial sector are necessary for financial stability. Strengthening of AML/CFT frameworks is also needed.

“Accelerating structural reforms will unlock Pakistan’s competitiveness, creating conditions to attract high-impact private investment. Reform priorities include reducing trade and investment barriers, advancing SOE reforms, and decisively strengthening governance and anti-corruption institutions.

“Reducing Pakistan’s vulnerability to extreme weather events will enhance macroeconomic stability and fiscal sustainability. The reforms under the Resilience and Sustainability Facility aim to build resilience to natural disasters by strengthening public investment processes, supporting efficient use of scarce water resources, strengthening coordination of natural disaster response and financing, improving the information on climate-related risks, and supporting Pakistan in meeting its international commitments.

“Pakistan’s total liquid foreign reserves stood at $ 15.48 billion as of 02-May-2025. The break-up of the foreign reserves position shows that foreign reserves held by the State Bank of Pakistan were hovering at $10.33 billion and the foreign reserves held by commercial banks ranged at $5.15 billion. During the week ended on 02-May-2025, SBP reserves increased by $118 million to $10.33 billion.”

A statement released by the Prime Minister’s Office (PMO) soon after the loan approval said, “Prime Minister Shehbaz Sharif expresses satisfaction over the IMF’s approval of a $1 billion tranche for Pakistan and the failure of India’s underhanded tactics against it.”

“India is attempting to divert attention from our national development through unilateral aggression and nefarious conspiracies,” the prime minister said. “International institutions have responsibly rejected India’s false propaganda.”

APP adds: Meanwhile, chairing a meeting on the preparation of federal budget 2025-26, Prime Minister Shehbaz Sharif said providing relief to the common man in the upcoming budget was the government’s priority, and all-out resources will be utilised to reduce the financial difficulties of the poor and middle class.

The budget should also focus extensively on creation of jobs, agriculture, information technology, small and medium enterprises, and the housing sector, he added.

Finance Minster Muhammad Aurangzeb said on the back of macroeconomic stability, we are determined to stay the course in terms of structural reforms which are well underway. Climate change is an existential issue for Pakistan, we are grateful to the IMF Board for having approved the RSF facility, which is supported at our end by important reform measures in this space.