IMF Lauds Pakistan’s Reforms, Eyes Feb 25 Visit for EFF & RSF Review

Pakistan has spent much of the past decade lurching from one balance-of-payments crisis to the next, its economy a recurring cautionary tale of structural fragility and stop-go policymaking. But something is shifting. On Thursday, the International Monetary Fund offered a rare and carefully worded endorsement of Islamabad’s economic direction — and confirmed a high-stakes review mission to Pakistan beginning February 25, 2026. For a country that has entered IMF programmes more than two dozen times in its history, this moment feels different. The question is whether it will last.

A Turning Point — or Another False Dawn?

Speaking at a press briefing in Washington, IMF Director of Communications Julie Kozack announced that an IMF delegation will visit Pakistan starting February 25 to conduct important review discussions. The mission — led by veteran IMF economist Iva Petrova — will engage Pakistani authorities on two parallel tracks: the Third Review under the Extended Fund Facility (EFF) and the Second Review under the Resilience and Sustainability Facility (RSF).

The IMF says the program aims to restore macroeconomic stability, rebuild external buffers and make Pakistan more resilient to climate shocks following devastating floods in recent years. At stake are approximately $1 billion in further disbursements — funds that matter not just as a liquidity cushion, but as a signal to international investors and bilateral creditors watching Pakistan’s reform trajectory with cautious optimism.

Fiscal Triumphs Amid Challenges

The headline numbers, by Pakistan’s own turbulent standards, are striking. Fiscal performance has been strong, with a primary surplus of 1.3 percent of GDP achieved in FY25, in line with targets. Gross reserves stood at $14.5 billion at end-FY25, up from $9.4 billion a year earlier, and are projected to continue to be rebuilt in FY26 and over the medium term.

Think of it as a ship that spent years taking on water finally getting its pumps working in earnest. Pakistan’s primary fiscal surplus — the first meaningful one in years — reflects a combination of revenue mobilisation efforts and expenditure restraint that the Fund has long demanded but rarely seen fully delivered. Meanwhile, headline inflation, though elevated by the damage wrought by the 2025 floods on food supply chains, has been described by Kozack as “relatively contained” — a judgment that would have seemed fanciful just two years ago when Pakistan’s CPI was flirting with 38 percent.

Perhaps the most symbolically resonant achievement is this: Pakistan recorded its first current account surplus in 14 years in FY2025. That milestone, after over a decade of chronic deficits that drained reserves and periodically pushed the country to the brink of default, signals a structural rebalancing of the external account — driven partly by surging remittances, a compression of import demand, and an improving export performance in textiles and services.

Governance Reforms on the Horizon

Beyond the macroeconomic stabilisation story, the IMF’s attention has sharpened around a harder challenge: fixing the institutional scaffolding that props up — or undermines — Pakistan’s long-term economic health.

“The governance and corruption diagnostic assessment report was recently published,” Kozack said. “It includes proposals for reforms, including simplifying tax policy design, levelling the playing field for public procurement, and improving the asset declaration transparency.”

This Governance and Corruption Diagnostic Report is more than bureaucratic box-ticking. It represents an IMF-backed acknowledgment that Pakistan’s recurring economic crises are not simply a function of bad luck or global headwinds — they are substantially home-grown, rooted in a tax system riddled with exemptions that favour the politically connected, a public procurement regime that creates fertile ground for rent-seeking, and an asset declaration framework weak enough to render elite accountability largely theoretical.

For Pakistan’s reform-watchers, the three pillars of the governance agenda are worth examining closely:

• Tax Policy Simplification: Pakistan’s Federal Board of Revenue has long struggled with a statutory tax-to-GDP ratio that looks reasonable on paper but collapses in practice due to exemptions, SROs (Statutory Regulatory Orders), and sector-specific carve-outs. Simplifying the design — not just the administration — is a structural shift that would require taking on powerful vested interests.
• Public Procurement Reform: Levelling the playing field in government contracting is code for dismantling the preferential access that state-linked enterprises and politically connected firms enjoy. The World Bank has flagged Pakistan’s procurement framework as a governance risk for years; IMF backing for reform adds weight to that demand.
• Asset Declaration Transparency: Pakistan’s elected officials and civil servants are required to file annual asset declarations, but enforcement and public accessibility remain patchy. Genuine transparency here would be a meaningful accountability shift.

Unfinished Business: The Revenue Gap and the Tariff Question

For all the positive optics, the IMF mission arriving on February 25 will not be walking into a celebration. While overall program performance has largely remained on track, revenue collection has fallen short of expectations. Specifically, analysts say the review is likely to pass but may involve difficult negotiations on fiscal discipline and energy policy. “This is expected to be a smooth sailing, however questions might arise,” Shankar Talreja, head of research at Karachi-based Topline Securities Limited, told Arab News. Experts say the IMF could question whether Islamabad consulted the lender before reducing electricity tariffs by about Rs4 per unit for export-oriented industries, a move designed to support manufacturing but with fiscal implications.

“Pakistan has missed” the IMF’s revenue target by Rs336 billion ($1.2 billion), he said. “Tax revenue shortfall which is one of the indicative targets which Pakistan has missed.”

This tension — between the government’s instinct to provide industrial relief and the Fund’s insistence on fiscal discipline — is the central fault line of Pakistani economic policymaking. The electricity tariff reduction, while defensible from a competitiveness standpoint, risks creating a precedent that the IMF will scrutinise carefully. How Islamabad navigates this negotiation will reveal much about the depth of its reform commitment.

Climate Resilience: The RSF Dimension

The second strand of the February 25 review — the RSF — is less discussed but increasingly consequential. The 28-month RSF was approved on May 9, 2025, and is supporting the authorities’ efforts to reduce vulnerabilities to natural disasters and to build economic and climate resilience.

Pakistan is among the world’s ten most climate-vulnerable nations, a grim distinction earned through geography and compounded by inadequate adaptation infrastructure. The RSF ties approximately $1.1 billion in concessional financing to specific climate-related benchmarks — improvements in water resource management, climate-conscious budgeting, and disaster financing coordination. Progress on these benchmarks will be central to the second RSF review.

Regional Context: How Pakistan Compares

Situating Pakistan’s IMF relationship within the South Asian context sharpens the picture. Bangladesh, until recently a celebrated development success story, is itself navigating post-political transition economic uncertainty. Sri Lanka, having passed through a catastrophic default in 2022, is further along in its IMF-supported recovery but contending with its own revenue and debt restructuring complexities. Pakistan, by comparison, has avoided outright default — narrowly and with considerable international support — and is now attempting to institutionalise stability rather than simply purchase time.

The critical difference this cycle, analysts argue, is structural rather than cyclical. Previous IMF programmes with Pakistan produced stabilisation followed by rapid policy reversal the moment external conditions eased or political pressures mounted. The EFF’s design — with its 37-month horizon and tightly sequenced structural benchmarks — is deliberately structured to make backsliding costly.

The Road Ahead

The February 25 mission carries implications that extend well beyond the immediate disbursement decision. Discussions are centered on Pakistan’s economic performance, revenue collection, spending discipline, and progress on structural reforms, including the National Fiscal Pact, capital market reforms, and transparency in development spending. The IMF team has also requested updates on the Governance and Corruption Risk Assessment Report, anti-money laundering enforcement, and transparency measures.

For international investors — many of whom stepped back from Pakistani debt markets during the 2022–23 crisis — a successful third review would send a confidence signal: that Pakistan’s stabilisation is durable enough to warrant renewed engagement. For ordinary Pakistanis, the stakes are more direct. Continued programme compliance is the foundation for the external financing that keeps import costs from spiralling and the rupee from collapsing.

The IMF has been careful not to oversell Pakistan’s progress — its language is measured, conditional, and forward-looking rather than celebratory. That caution is appropriate. Pakistan’s reform history is littered with promising beginnings that ran aground on political economy realities: a powerful landed elite resistant to agricultural taxation, an industrial sector addicted to protection, and a civil-military complex that has historically subordinated economic rationality to security imperatives.

But the combination of a 1.3% primary surplus, a 14-year current account surplus milestone, $14.5 billion in reserves, and a governance reform agenda backed by independent diagnostic rigour represents, at minimum, a more credible foundation than Pakistan has had in years.

Sources:

IMF.org | Arab News Pakistan | Dawn.com | Dunya News | Topline Securities via Arab News | World Bank Pakistan