IMF Warns Pakistan: $1.2 Billion Bailout Amid Reform Slippage Risks

In a report issued Thursday after the IMF Executive Board completed the second review of Pakistan’s Extended Fund Facility (EFF) and the first review under the Resilience and Sustainability Facility (RSF), the Fund said it has approved an immediate disbursement of about $1 billion under the EFF and around $200 million under the RSF.

But the approval came alongside a “request for a waiver of nonobservance of a performance criterion,” underscoring continuing gaps in Pakistan’s compliance with programme commitments.

The IMF noted that while Pakistan’s authorities had shown “strong program implementation,” the economy remained exposed to significant risks and required sustained discipline to avoid backsliding.

“Policy priorities remain centered on maintaining macroeconomic stability and advancing reforms to strengthen public finances, enhance competition, raise productivity and competitiveness, bolster the social safety net and human capital, reform SOEs, and improve public service provision and energy sector viability,” the IMF said.

The reference to state-owned enterprises and the energy sector reflects longstanding IMF concerns over chronic losses, inefficiencies and fiscal drains that have repeatedly undermined Pakistan’s stabilisation efforts.

In its staff report, the IMF highlighted that programme monitoring relies on detailed and continuous reporting by Pakistani authorities, including the State Bank of Pakistan, the Ministry of Finance and other agencies, and warned that “any non-observance of continuous PCs” must be promptly reported.

The IMF also drew attention to Pakistan’s heavy debt burden and reliance on external financing. Tables in the report show total public debt at over $307 billion, with external debt accounting for more than one-third of the total, and IMF obligations forming a significant component of multilateral liabilities.

While acknowledging progress, the Fund made clear that gains remain fragile.

“Fiscal performance has been strong, with a primary surplus of 1.3 per cent of GDP achieved in FY25, in line with targets,” the IMF said, but added that inflation had risen, “reflecting the impact of the floods on food prices,” and that pressures on households remained acute.

The IMF stressed that Pakistan’s economic recovery is vulnerable to shocks and policy reversals, particularly in a challenging global environment.

“Continued strong policy implementation has helped Pakistan weather several shocks this year,” the IMF said in its executive summary, but cautioned that “the recent floods moderately dampen the outlook for FY26.”

The Fund also underscored the urgency of reforms linked to climate resilience, warning that Pakistan’s repeated exposure to natural disasters poses long-term economic risks.

“The recent floods highlight the urgency of moving swiftly on climate-related reforms to build resilience to the frequent natural disasters that Pakistan faces,” the IMF said, noting that progress in this area is being supported by the RSF.

Despite rebuilding foreign exchange reserves to $14.5 billion at the end of FY25, up from $9.4 billion a year earlier, the IMF said reserves still need to be strengthened over the medium term, with careful macroeconomic management.

For India and the region, the IMF’s assessment reinforces concerns about Pakistan’s repeated reliance on international bailouts, weak reform follow-through and structural economic fragilities, which have implications for regional stability and growth.

Pakistan’s 37-month EFF was approved in September 2024, while the 28-month RSF was approved in May 2025. Together, the programmes aim to stabilise Pakistan’s economy, restore confidence and support reforms, but the IMF’s latest review makes clear that sustained compliance and reform momentum remain critical.

Pakistan has turned to the IMF more than 20 times since the late 1980s, reflecting chronic balance-of-payments problems, narrow tax bases and weak governance. India has consistently argued in international forums that repeated bailouts without big structural change have failed to deliver durable stability.

The IMF’s latest warnings underline that, despite additional funds, Pakistan’s economic challenges are far from resolved, and continued scrutiny will remain central to the programme’s future reviews.

- IANS