IMF and Pakistan Finalize $1 Billion Loan Agreement, $1.3 Billion Climate Facility

IMF and Pakistan reach a staff-level agreement for a $1 billion loan under EFF and a $1.3 billion climate resilience fund. Learn about key policy commitments.

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Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement under the Extended Fund Facility (EFF) and the Resilience and Sustainability Facility (RSF), unlocking a total of $2.3 billion in financial support. The agreement, concluded after negotiations from February 24 to March 14, 2025, awaits approval by the IMF’s Executive Board.

Key Highlights of the IMF Agreement

$1 Billion Loan Under EFF: Pakistan will receive $1 billion (SDR 760 million), bringing total EFF disbursements to $2 billion.
$1.3 Billion RSF Arrangement: The 28-month RSF will provide $1.3 billion (SDR 1 billion) to support climate resilience.
Economic Stability Progress: Inflation has declined to its lowest level since 2015, while financial conditions and external balances have improved.
Policy Commitments: Fiscal consolidation, monetary stability, energy sector reforms, and climate resilience initiatives are key priorities.

Understanding the Resilience and Sustainability Facility (RSF)

The Resilience and Sustainability Facility (RSF) provides long-term, affordable financing for reforms that address climate-related and financial stability risks. Pakistan’s RSF-supported program focuses on:

Enhancing disaster resilience and climate adaptation.
Improving water resource management.
Strengthening governance and financial disclosures on climate risks.
Expanding green mobility to combat pollution.

Key Policy Commitments Under the IMF Agreement

1. Fiscal Consolidation

Pakistan aims to reduce public debt while maintaining development and social sector spending. The government is committed to achieving a 1.0% primary surplus in FY25 and further consolidation in FY26. To meet these targets:

The Benazir Income Support Programme (BISP) will remain unchanged.
Energy subsidy reductions will generate fiscal savings.
Provinces have reformed Agriculture Income Tax (AIT) to expand the tax base.
Transparency in spending will be improved via e-PADS (Pakistan Acquisition and Disposal System).

2. Monetary and Exchange Rate Policy

The State Bank of Pakistan (SBP) will continue its tight monetary policy to keep inflation within 5–7%.
Exchange rate flexibility will be maintained to rebuild foreign exchange reserves.

3. Energy Sector Reforms

To reduce costs and enhance efficiency in the energy sector, the government will:

Implement electricity and gas tariff adjustments in a timely manner.
Reduce circular debt by improving distribution efficiencies.
Integrate captive power into the national grid.
Privatize inefficient state-owned power plants.
Expand renewable energy projects.

4. Structural and Governance Reforms

The government will:

Strengthen SOE (State-Owned Enterprise) governance.
Enhance trade liberalization to attract investment.
Establish robust anti-corruption mechanisms.
Develop the Pakistan Sovereign Wealth Fund (PSWF) with strong governance safeguards.

5. Climate Resilience Initiatives

Pakistan’s climate resilience strategy under the RSF includes:

Disaster-Resilient Infrastructure: Prioritizing climate adaptation projects.
Efficient Water Management: Introducing better pricing and usage mechanisms.
Climate Finance Coordination: Strengthening intergovernmental collaboration.
Green Mobility Expansion: Promoting eco-friendly transportation solutions.

Economic Progress and Future Prospects

The IMF highlighted Pakistan’s notable macroeconomic recovery over the past 18 months, citing inflation control, improved financial stability, and strengthened external balances. However, risks remain, including potential policy slippages, geopolitical uncertainties, and climate-related disruptions.

The staff-level agreement is expected to unlock critical funding, ensuring continued economic stabilization and sustainable growth. It also aligns with Pakistan’s long-term goals of fiscal prudence, structural reforms, and climate resilience.

Conclusion and Next Steps

With the IMF Executive Board’s approval, Pakistan will gain immediate access to the $1 billion EFF tranche, supporting its economic stability. The additional $1.3 billion RSF funding will bolster Pakistan’s climate resilience efforts, helping mitigate disaster risks and promote sustainable development.

As Pakistan navigates its economic recovery, continued adherence to fiscal discipline, monetary stability, and energy reforms will be crucial. The IMF agreement signals renewed investor confidence and paves the way for long-term economic resilience and growth.