EDITORIAL: The staff-level agreement on the fourth review of the $7 billion Extended Fund Facility (EFF) and the third review of the $1.4 billion Resilience and Sustainability Facility (RSF) was reached and uploaded on the International Monetary Fund website on 7 October at the conclusion of the two-week mission.
The data pertained to last fiscal year ending on 30 June, with the exception of inflation, and the press release noted that “real GDP growth reached 4 percent in the first three quarters of FY26, and although higher energy prices and supply disruptions weakened somewhat the momentum, FY26 growth is estimated at 3.6 percent. Headline inflation, after peaking in May, moderated to about 10.3 percent in September, while core inflation remained contained. The current account was broadly balanced in FY26 supported by strong remittances, and gross reserves rose to about US$21½ billion by end-September.”
Two observations are critical. First, according to the Pakistan Bureau of Statistics, headline inflation has not peaked since May, when it clocked in at 3.5 percent. Furthermore, the 44.7 percent of Pakistanis operating below the poverty line (as per the World Bank) are unlikely to support the use of the word ‘moderated’ to describe September’s 10.3 percent year-on-year inflation rate, which is down by 0.8 percent from 11.1 percent in August.
Core inflation, non-food and non-energy (items that impacted majorly on the poor and vulnerable) did decline from 9 percent in May to 8.6 percent in September. And, secondly, one can argue that the rise in the growth rate was undoubtedly not the outcome of the contractionary monetary and fiscal policies agreed with the Fund but due to higher consumption levels, particularly as food and energy costs rose, as well as the low GDP growth base in previous years.
Be that as it may, remittances rose quite unexpectedly, given the ongoing Middle East conflict, with reports suggesting that it was due to the Pakistani overseas workers opting not to return to the country even as other nationalities did. And current account was broadly balanced though there are concerns that with the rise in import of raw materials/semi-finished products the prospect of the re-emergence of the boom-bust cycle may be activated again.
Total foreign exchange reserves are a historic high of $21 billion though with the rise in the prices of petroleum and products as well as fertilizer and food due to the Middle East conflict account for roughly 3.2 months of imports for Pakistan – three months considered the minimum required by multilaterals.
The Fund also acknowledged that “sovereign rating upgrades and renewed international market access also point to stronger policy credibility. Nevertheless, risks remain high, particularly from geopolitical tensions, volatile energy prices, tighter global financial conditions, and trade disruptions.” This claim is supported by the recent two-phase issuance of $3 billion in Eurobonds last month on the London Stock Exchange.
The first tranche—$1.75 billion with a maturity of five and a half years—carries a 7.5 percent interest rate, while the remaining $1.25 billion with a 10-year maturity sits at 7.9 percent. These rates are at least double those available from multilateral and bilateral sources. While the sovereign spread represents the additional yield investors demand to hold the bond—and borrowing costs are rising across Western nations, with the US at 5.02 percent for a five-year bond—this issuance is nonetheless an achievement. This is especially true since this source of funds was declared too expensive to secure by the caretaker finance minister in 2023, though she did not mention the actual yield on offer at the time.
Finally, the Fund’s press release included a graph—sourced from the Fraser Institute, World Bank, World Wide Governance Indicators, Economic Freedom of the World, Budina et al., and staff calculations—titled “Structural Indicators in Governance, Business Regulation, and External Sector Show Large Catch-up Potential for Pakistan with Emerging Markets and Developing Economies.”
Details of what was discussed, what was agreed upon, and the time-bound structural benchmarks—whether upfront actions or waivers—will be available once the detailed report is uploaded to the website, which usually occurs at least a month after the end of the mission. However, the fact that a Staff-Level Agreement (SLA) was reached at the concluding stage of the mission, unlike in the last review, indicates that the Fund not only accounted for external factors, such as the negative impact of the Middle East conflict on the economy, but also that the authorities are adhering to its prescriptions in letter and spirit to the greatest extent possible.
Copyright Business Recorder, 2026