The International Monetary Fund (IMF) has approved the immediate disbursement of approximately $1 billion to Pakistan under the ongoing Extended Fund Facility (EFF). The decision, made on May 9, followed the conclusion of the initial review of Pakistan's economic reform program under the EFF arrangement. The IMF also approved Pakistan's request for an arrangement under the Resilience and Sustainability Facility (RSF), granting access to approximately $1.4 billion.

The EFF, approved on September 25, 2024, aims to build resilience and enable sustainable growth in Pakistan, focusing on entrenching macroeconomic sustainability. The RSF will support Pakistan's efforts to reduce vulnerabilities to natural disasters and build economic and climate resilience. According to the IMF, Pakistan has demonstrated strong implementation of the EFF-supported reforms. The country's economic stabilization was evident through a primary fiscal surplus of 2.0% of GDP in the first half of FY2025, historically low inflation at 0.3% in April, and improved external buffers. Gross foreign exchange reserves rose from $9.4 billion in August 2024 to $10.3 billion by the end of April 2025, with projections reaching $13.9 billion by June’s end.

India has raised concerns regarding the efficacy of IMF programs in Pakistan, given its history, and the potential misuse of funds for state-sponsored cross-border terrorism. New Delhi abstained from voting at the IMF meeting, noting the absence of a provision to vote against the loan. India pointed out that rewarding continued sponsorship of cross-border terrorism sends a dangerous message to the global community, exposing funding agencies and donors to reputational risks, and makes a mockery of global values. The Indian finance ministry stated that fungible inflows from international financial institutions like the IMF could be misused for military and state-sponsored terrorist purposes. It also highlighted the Pakistan military's interference in economic affairs, posing significant risks of policy slippages and reversal of reforms.

Pakistan's Prime Minister Shehbaz Sharif expressed satisfaction with the IMF's approval and the failure of India's tactics against it. He stated that Pakistan's economic situation has improved, and the country is moving towards development. The Prime Minister's Office issued a statement asserting that Indian attempts to sabotage the IMF program have failed and that the program would help stabilize Pakistan's economy and put it on the path towards long-term recovery. They are working on priority areas such as tax reform, improved energy sector performance, and private sector development. The improved economic indicators in the last 14 months are a reflection of the government's positive policies.

Policy priorities under the EFF moving forward include continued fiscal discipline, expansion of the tax base, restructuring of state-owned enterprises (SOEs), and reforms to enhance public services and energy sector sustainability. The IMF also highlighted the importance of reducing reliance on the public sector to create more space for private credit and investment. The RSF will focus on climate resilience through improved disaster response coordination, more efficient use of water resources, better climate-related risk disclosures by financial institutions, and support for Pakistan's international climate mitigation commitments.

Nigel Clarke, IMF Deputy Managing Director and Chair, acknowledged Pakistan's progress in restoring macroeconomic stability despite a challenging environment. He noted that the economy continues to recover, with inflation sharply lower and external buffers notably stronger. Clarke emphasized the need for authorities to maintain sound macroeconomic policies and accelerate reforms to safeguard the macroeconomic gains and underpin stronger and sustainable, private sector-led medium-term growth. Risks to the outlook remain elevated, however, particularly from global economic policy uncertainty, rising geopolitical tensions, and persistent domestic vulnerabilities.