The IMF Staff Mission is arriving shortly in Pakistan to undertake the third review of the Extended Facility to Pakistan and the second review of the Resilience and Sustainability Facility. These two facilities amount to a total loan of USD 7.2 billion by the IMF.
Successful completion of the reviews will lead to the disbursement of a loan amount of USD 1.2 billion.
This article focuses first on a broad economic appraisal of the performance of Pakistan’s economy in the period under review of the first half of 2025-26. A comparison is made with the macroeconomic projections of the IMF for the year. This is then followed by analysis of Pakistan’s performance in relation to the performance criteria and indicative targets in the IMF Programme for the period, July to December 2025.
The first projection relates to the GDP growth rate in 2025-26. IMF expects it to be 3.2 percent.
The actual outcome has become available for the first quarter and the growth rate achieved is higher at 3.7 percent. There has been a significant recovery in the manufacturing sector with a growth rate of almost 6 percent.
However, the negative impact of the floods is likely to be reflected more in the second quarter.
The IMF has projected a rate of inflation of 6.3 percent in 2025-26. The first six months have witnessed an average rate of inflation of 5.2 percent, with the rate in December of 5.6 percent. The core rate of inflation has averaged 7.7 percent over the period.
The budgetary balance in 2025-26 is projected at a deficit of 4 percent of the GDP and a primary balance at 2.5 percent of the GDP.
The consolidated position of the federal and provincial governments at the end of the first quarter is a large surplus of Rs 2,119 billion. This is due to a large lump-sum transfer of Rs 2,426 billion in the form of profits by the SBP.
The projections of crucial importance are of the external balance of payments. The IMF expectation is that the year will close with a surplus of USD 1.4 billion. The first six months have witnessed a significantly smaller surplus of only USD 0.4 billion.
The current account balance has turned negative once again after a positive balance of over USD 2 billion in 2024-25. It has been recorded at negative USD 1.2 billion in the first six months of 2025-26. This is in relation to the IMF projection for the year of a deficit of just over USD 2 billion.
There is a significant difference in the projections of the growth in external trade in goods. The IMF expects a modest growth rate of 1.5 percent in exports in 2025-26, whereas there has actually been a decline in exports of 5 percent in the first six months.
IMF projects the growth rate in imports of 8.5 percent, but the actual growth rate has been significantly higher at 12.3 percent.
Based on the persistence of this divergence, there is a big risk that the deficit in the current account could rise to USD 6.0 to USD 6.5 billion by the end of 2025-26. This could also imply a significantly larger deficit in the balance of payments and put pressure on the foreign exchange reserves.
We turn to the performance in relation to the targets set for 2025-26 by the IMF. There are nine performance criteria and also nine indicative targets.
Information is not available on the actual performance up to December 2025 in some cases.
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A critical performance measure is the level of net foreign exchange reserves in the IMF Programme. The targeted level is USD 7 billion as of the end of December.
The SBP does not publish the data on net foreign exchange reserves. However, deduction of time liabilities and short-term outstanding loans from the gross reserves reveals the level to be about 10 percent above the target level. This is a significantly positive outcome.
The other targets which are likely to have been met as of December 2025 include the level of domestic assets of the SBP, government primary surplus and the provincial cash surplus.
Information is not available on the level of education and health spending, power sector payment arrears, number of new tax returns filed with FBR and revenues collected from retailers.
There are two criteria or targets where there appears to have been a shortfall. The first indicative target not met is of FBR revenues. The target for the first six months was Rs 6,490 billion, whereas the actual collection has been Rs 6,154 billion, indicating a significant shortfall of Rs 336 billion.
There is the risk that the shortfall could increase substantially by the end of 2025-26.
The actual growth rate in the first six months is 9.5 percent, whereas the annual growth rate is targeted at 20.3 percent. Therefore, unless FBR undertakes urgent measures to increase revenues, the shortfall by June 2026 could approach Rs 1,250 billion. This will also increase the likelihood that the budget deficit and the primary balance targets will not be met.
The next area of focus are the various structural conditionalities involving policy actions and structural benchmarks. This is a very wide-ranging list. The critical areas on which the IMF is likely to focus in the review process need to be highlighted.
The first structural benchmark is related to the commitment to publish a comprehensive action plan based on the IMF Governance Diagnostic report by December 2025.
The second set of reforms relates to implementation of fiscal measures to enhance the effectiveness of the FBR by March 2026.
The IMF also expects Pakistan to maintain a flexible exchange rate policy regime. The actual position has been of nominal stability at close to Rs 280 per US dollar.
The IMF projection is for the exchange rate to approach Rs 297 per USD by end of 2025-26.
There are two major steps in the agricultural sector which are to be implemented. The first step is to refrain from any federal/provincial support pricing and procurement operations for wheat.
The second step is to introduce a 5 percent federal excise duty on fertilizer and pesticides. These are extremely controversial measures with the likelihood of a big negative impact on the agricultural sector and will need to be renegotiated with the IMF.
Overall, there is the likelihood that the third review will proceed in a positive manner like the first two reviews.
The economy has come close to meeting the macroeconomic targets in the first six months. Some quantitative performance and indicative targets are proving difficult to achieve, like the FBR revenues. Appropriate steps will need to be taken to reduce the shortfalls.
Copyright Business Recorder, 2026
The writer is Professor Emeritus at BNU and former Federal Minister
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