IMF urges continued reforms in Pakistan’s fiscal, monetary, and energy sectors to enhance sustainability and resilience

The International Monetary Fund (IMF) has praised Pakistan’s economic reforms under the Extended Fund Facility (EFF) and highlighted key achievements in stabilizing the country’s economy despite external challenges. The IMF forecasted a 3.2% GDP growth for Pakistan in FY26, up from 3% in FY25, and a moderation in inflation to 6.3% in the same period.

The IMF’s statement, following the completion of its second EFF review, noted that Pakistan’s economic performance had remained strong, with accelerated real GDP growth, anchored inflation expectations, and a reduction in fiscal and external imbalances. 

The IMF attributed these outcomes to Pakistan’s efforts to implement prudent economic policies, even in the face of recent natural disasters, such as severe floods.

“Pakistan’s reform implementation has been instrumental in preserving macroeconomic stability,” stated Nigel Clarke, IMF’s Deputy Managing Director and Acting Chair. He further emphasized the need to maintain such policies to promote private sector-led growth and ensure long-term fiscal sustainability.

While the IMF commended Pakistan’s fiscal performance, which showed a primary surplus of 1.3% of GDP in FY25, it underscored the need for continued fiscal and monetary reforms. 

The IMF has recommended measures to broaden the tax base, simplify tax policies, and ensure better revenue generation. It also advised tightening monetary policy to reduce inflation and enhance the effectiveness of Pakistan’s central bank.

The IMF also highlighted the need to reform the energy sector, focusing on reducing electricity production and distribution costs, addressing inefficiencies, and enhancing Pakistan’s competitiveness. Structural reforms and governance improvements, particularly in state-owned enterprises (SOEs), were also stressed as key factors for sustained growth.

Regarding climate resilience, the IMF noted that Pakistan’s vulnerability to extreme weather events, underscored by recent floods, requires continued attention. The IMF’s Resilience and Sustainability Facility (RSF) is aiding Pakistan in strengthening its natural disaster response, improving water resource management, and building long-term climate resilience.

Pakistan’s foreign exchange reserves have improved, reaching $14.5 billion at the end of FY25, and are projected to continue increasing through FY26. However, the IMF warned that the country must continue to manage risks associated with inflation, external debt, and vulnerability to climate impacts.

As Pakistan looks ahead to FY26, the IMF’s report calls for further strengthening of fiscal policies, improvements in governance, and continued focus on energy and climate-related reforms to ensure long-term economic stability.