Pakistan IMF Deal 2026: Third Review Cleared, Budget 2026-27 and Inflation Outlook

The International Monetary Fund’s Executive Board has completed the third review of Pakistan’s Extended Fund Facility and the second review of its Resilience and Sustainability Facility, unlocking continued disbursements at a moment when the country’s external buffers remain thin but improving, according to the IMF’s official press release.

Fiscal Discipline Holding, Barely

Pakistan is on track to deliver a primary surplus of 1.6% of GDP in FY26, in line with program targets, while gross reserves climbed to $16 billion at end-December from $14.5 billion at end-June 2025. GDP growth in the first half of FY26 averaged 3.8% year-on-year, driven by the auto, construction, and garment industries, per the IMF’s Country Report No. 26/101.

Not every benchmark was met. A structural benchmark requiring amendments to the Sovereign Wealth Fund Act to align governance safeguards with international standards was missed, though the changes are pending Cabinet approval. A separate continuous benchmark barring preferential tax treatment was also missed after an extension of a sugar-import tax exemption, which authorities subsequently repealed.

The Middle East War’s Fiscal Bite

The IMF flags that Pakistan’s current account is projected to worsen by roughly 0.2 percentage points in FY26 and 0.4 points in FY27 as higher fuel-import costs are only partially offset by compressed non-oil imports. Under the Fund’s April 2026 adverse scenario, the cumulative hit to GDP could reach 1.5 percentage points by FY27, with inflation and current-account deterioration each roughly 1.5 to 2.5 percentage points worse than a pre-conflict baseline. Business Recorder separately reported the IMF lowering Pakistan’s growth forecast to 3.5% for the current fiscal year while raising the inflation projection to 8.4%, according to Business Recorder’s coverage.

Revenue Mobilization Under Pressure

Meeting the FY27 fiscal target requires an additional 0.6% of GDP in revenue-collection measures to address chronically low tax buoyancy. The Federal Board of Revenue (FBR) is expected to generate 0.3% of GDP in additional revenue through its transformation plan and by streamlining tax expenditures, with an FBR revenue-collection floor proposed as a new quantitative performance criterion starting December 2026. At the provincial level, authorities are focused on broadening the General Sales Tax (GST) base for services.

Governance Costs Still Weighing on Growth

Pakistan’s economy loses an estimated 5–6.5% of GDP annually to corruption tied to entrenched “elite capture,” according to the IMF’s 2025 Governance and Corruption Diagnostic Assessment cited in Wikipedia’s economy of Pakistan overview. The IMF has urged continued momentum on anti-corruption institutions, state-owned enterprise reform and privatization, and energy-sector viability, alongside the broader structural reform push tied to the fund’s ongoing lending program.

For investors and businesses tracking Pakistan’s KSE-100 and rupee trajectory, the third review’s completion is a signal of continued program credibility, but the widening current-account gap tied to Middle East energy costs means the reform runway remains narrow.