Pakistan, IMF finalize $1.2 billion loan agreement
IMF to give Pakistan $1 billion under EFF and $200 million under RSF after executive board approval.
Pakistan and IMF Reach $1.2 Billion Staff-Level Loan Deal, Marking Crucial Step for Economic Stability
After weeks of tense negotiations and mounting uncertainty, Pakistan and the International Monetary Fund (IMF) have finally reached a staff-level agreement (SLA) on Wednesday, October 15, 2025. The long-awaited deal paves the way for Islamabad to unlock $1.2 billion in financial assistance — a much-needed lifeline for the struggling South Asian nation.
The agreement, still pending approval from the IMF’s executive board, brings together two major funding components: $1 billion under the Extended Fund Facility (EFF) and another $200 million under the Resilience and Sustainability Facility (RSF). These funds are aimed not only at stabilizing Pakistan’s fragile economy but also at helping it adapt to the growing threat of climate change.
This milestone follows last week’s discussions between an IMF mission — led by Iva Petrova — and Pakistani authorities. The mission was tasked with conducting the second review of the EFF, which had been agreed upon in 2024, and the first review of the RSF, a newer climate-focused loan programme approved earlier this year. Despite extensive talks, the mission had initially departed without signing a staff-level agreement, leaving Islamabad anxious about its next tranche of funding.
Now, with the SLA in place, Pakistan has cleared a major hurdle. Yet, the country’s economic path remains steep and uncertain.
Ms. Petrova, who headed the IMF delegation, acknowledged both Pakistan’s progress and the daunting challenges it continues to face. “The authorities reaffirmed their commitment to the EFF and RSF-supported programmes,” she said, “and to maintaining sound and prudent macroeconomic policies while advancing ongoing structural reforms.”
Her statement reflects cautious optimism. Pakistan’s government, led by Finance Minister Muhammad Aurangzeb, has pledged to uphold fiscal discipline and continue its reform agenda — from widening the tax net to ensuring more efficient public spending. The IMF emphasized that these steps are critical for restoring economic stability, rebuilding investor confidence, and sustaining growth in the long run.
However, the country’s recent floods have once again exposed its vulnerability. Petrova noted that these devastating floods — coming on the heels of the catastrophic 2022 floods — have weighed heavily on Pakistan’s outlook, especially its agriculture sector, which remains the backbone of the economy. As a result, the IMF has revised down Pakistan’s GDP growth projection for FY26 to around 3.25–3.5%, a sobering reminder of how fragile recovery remains in the face of climate shocks.
“The recent floods and those of 2022 have underscored the urgent need to build Pakistan’s climate resilience,” Petrova said, highlighting why the RSF component of the package is so crucial. The $200 million under the RSF will help Pakistan invest in climate adaptation projects, including flood control infrastructure, sustainable agriculture initiatives, and renewable energy programmes.
Beyond climate resilience, the IMF also commended Pakistan’s commitment to achieving its FY26 budget primary surplus target of 1.6% of GDP. The government aims to do this through better tax compliance, broadening the tax base, and reducing unnecessary expenditures — all while ensuring that essential social spending is protected.
“The authorities stand ready to take necessary actions should revenue shortfalls risk programme targets,” Petrova added, signaling that Islamabad is prepared to make tough choices if needed to stay on track.
The IMF’s latest agreement comes at a time when Pakistan’s foreign exchange reserves remain under pressure, inflation is still high, and the rupee has experienced periodic volatility. The $1.2 billion package, once approved by the IMF board, will provide not just financial relief but also a psychological boost for investors and international partners, potentially unlocking further bilateral and multilateral support.
For ordinary Pakistanis, however, the relief may not be immediate. Many continue to grapple with soaring food prices, power shortages, and job insecurity. But for the government, this deal signals a vital moment of stability — a bridge between economic distress and the hope of gradual recovery.
As Pakistan awaits final approval from the IMF’s executive board, optimism is tempered with realism. The road ahead requires consistent policy implementation, resilience against climate shocks, and unwavering commitment to reform. Yet, for the first time in months, there’s a sense that Islamabad may be turning a corner — with the IMF’s helping hand guiding it toward a more stable, sustainable future.