Key Takeaways
- Pakistan and IMF reached a staff-level agreement on the fourth review of the $7-billion Extended Fund Facility.
- The agreement includes maintaining a tight monetary policy and preserving exchange-rate flexibility.
- The IMF’s prescription remains unchanged, focusing on fiscal consolidation and energy price reforms.
Pakistan and the International Monetary Fund (IMF) have reached a staff-level agreement on the fourth review of the $7-billion Extended Fund Facility (EFF) and the third review of the Resilience and Sustainability Facility (RSF).
The agreement, which is subject to approval by the IMF Executive Board, includes familiar instructions such as maintaining a tight monetary policy and preserving exchange-rate flexibility.
These measures are part of a broader set of requirements that include delivering a required primary surplus, continuing reforms to make energy prices reflect costs, and further energy-sector reforms.
The agreement reflects the IMF’s ongoing emphasis on fiscal consolidation and market-determined exchange rates, which have been a recurring theme in Pakistan’s economic stabilization efforts.
While the IMF’s approach has helped Pakistan avoid default, stabilize foreign-exchange reserves, and reduce inflation, critics argue that these policies may not address the underlying issues that contribute to periodic economic crises.
The IMF’s May 2026 visit reiterated the need for an “appropriately tight” monetary stance, exchange-rate flexibility, and continued fiscal consolidation, alongside further energy-sector reforms.
Pakistan has spent decades stabilizing its economy only to find that the process of stabilization has done little to increase productive capacity, leading to repeated crises.
The economic cycle of stabilization and development is often compared to prescribing the same paracetamol for a recurring fever without addressing the root cause.
The intellectual roots of this approach lie in the broader Washington Consensus tradition, which advocates for fiscal discipline, liberalized markets, competitive exchange rates, and privatization.
While these policies have their logical basis, critics argue that stabilizing the economy through these measures does not address the supply-side components that often drive inflation in Pakistan.
