IMF approves $1.2 billion for Pakistan from bailout, citing progress on economic and climate reforms

The International Monetary Fund approved a $1.2 billion financial package for Pakistan on Tuesday, providing crucial support as the South Asian nation continues its recovery from one of its most severe economic crises in recent memory.

The funding comprises approximately $1 billion from the IMF’s primary loan facility and an additional $200 million through a specialized climate-focused program, according to the organization’s official statement. This latest installment brings Pakistan’s total receipts from the IMF to roughly $3.3 billion since 2023.

Under the terms of the current bailout agreement, Pakistan will continue receiving loan installments over a 37-month period, contingent upon meeting specified economic reforms and financial benchmarks. The arrangement reflects Pakistan’s longstanding reliance on IMF assistance and loans from allied nations to address its chronic financing gaps.

Prime Minister Shehbaz Sharif welcomed the IMF’s decision, describing it as validation of his government’s reform initiatives and effective implementation of IMF-endorsed policies. In his statement, Sharif emphasized that the approval demonstrates Pakistan’s commitment to stabilizing and growing its economy after narrowly avoiding default last year.

Notably, Sharif publicly acknowledged Field Marshal Gen. Asim Munir, the country’s influential army chief and head of defense forces, for his significant contribution to supporting the economic reform agenda. The prime minister also recognized Finance Minister Muhammad Aurangzeb and his team for their persistent efforts in implementing challenging economic changes.

While celebrating Pakistan’s reform and digitalization efforts as a global “case study,” Sharif cautioned that transitioning from economic stability to sustainable growth would require continued dedication and structural reforms.

The IMF’s statement highlighted Pakistan’s “significant progress” in stabilizing its economy despite challenging global conditions and the devastating floods that struck the country recently. The fund pointed to several positive indicators, including a strengthened fiscal position, increased foreign exchange reserves now standing at $14.5 billion, and modest growth resumption.

Although inflation has spiked in recent months—largely attributed to flood-related disruptions that drove food prices higher—the IMF expressed confidence that these pressures would gradually subside as supply chains normalize and monetary measures take effect.

The current bailout program, approved earlier this year, has multiple strategic objectives: rebuilding Pakistan’s depleted foreign exchange reserves, strengthening the country’s tax collection system, and implementing critical reforms in loss-making state-owned enterprises, particularly within the energy sector. The supplementary climate facility, a newer component in the IMF’s relationship with Pakistan, supports initiatives to enhance disaster management capabilities, improve water resource management, and develop climate-related financial reporting standards.

Nigel Clarke, the IMF’s deputy managing director, stressed that Pakistan must maintain fiscal discipline in the face of ongoing uncertainties in the global economy. He commended the government’s commitment to meeting next year’s budget targets while simultaneously addressing the extensive damage caused by flooding.

Looking ahead, Clarke emphasized the importance of maintaining tight monetary policy, allowing for a flexible exchange rate mechanism, and accelerating the long-delayed reforms in the energy sector—all essential elements for Pakistan’s continued economic recovery and long-term stability.

Pakistan’s economic challenges remain substantial, but the IMF’s continued support signals growing confidence in the country’s reform trajectory and provides essential breathing room for its strained finances as the government works to build a more resilient economic foundation.