IMF wraps up visit as Pakistan pledges fiscal discipline with 2% of GDP primary surplus target

The International Monetary Fund logo is seen inside the headquarters at the end of the IMF/World Bank annual meetings in Washington, US, October 9, 2016. Reuters The International Monetary Fund (IMF) mission on Wednesday wrapped up its discussions with the officials in the finance ministry, focusing on economic developments, fiscal plans for the next fiscal year (FY2027-28), and progress on reforms under the fund-supported programmes, it said in a statement. The IMF said authorities in Islamabad have committed to a primary surplus target of 2% of gross domestic product in fiscal year (FY) 2027-28. The fund's team, led by advisor Iva Petrova, visited Islamabad from May 13-20 for discussions that focused on economic developments, progress on reforms and the impact of disruptions linked to the conflict in the Middle East. The IMF earlier in May cleared the South Asian nation to access about $1.32 billion in fresh funding. The country is on a $7 billion IMF programme. The State Bank of Pakistan (SBP) has committed to maintaining an "appropriately tight monetary policy stance" to anchor inflation expectations and will continue to closely monitor potential second-round effects from energy price increases, the IMF said. Furthermore, it added that exchange rate flexibility should continue to serve as a key shock absorber, and efforts should continue to build a deeper foreign exchange interbank market. "Discussions also covered ongoing structural reforms, including in the energy sector and state-owned enterprises, product market liberalisation, and financial sector reforms aimed at supporting durable growth and attracting high-quality private investment," the lender said. The statement added that the progress under the Resilience and Sustainability Facility (RSF) was also discussed, including efforts to adopt a disaster risk financing framework, integrate climate considerations into budget and investment planning, and advance power subsidy reforms. "The mission thanks the federal and provincial authorities for their constructive engagement, strong collaboration, and continued commitment to sound policies," the IMF said, concluding the statement. Discussions on the FY2027 budget will continue in the coming days, according to the statement. The next mission, which is envisioned to include the Article IV consultation and Extended Fund Facility (EFF) and RSF reviews, is expected to take place in the second half of 2026. 'Significant progress' Last week, the IMF in a report said that Pakistan’s steady policy execution has helped preserve economic stability and improve financing conditions, even as the fallout from the Middle East conflict tests the broader outlook, stressing that maintaining disciplined policies and accelerating structural reforms will be critical for the country to build resilience and secure sustainable long-term growth. The Fund's Executive Board released the report after completing the third review of the Extended Arrangement under the EFF and the second review of the arrangement under the RSF. The global lender said that Pakistan had made “significant progress” under its reform programme supported by the EFF and the RSF. "Pakistan’s policy efforts under the EFF arrangement have delivered significant progress in stabilising the economy and rebuilding confidence amid a challenging global environment, including the ongoing Middle East war," the Fund said. "Fiscal performance has been strong, with a primary surplus of 1.6% of GDP expected to be achieved in FY26, in line with targets. Inflation has increased as higher global commodity prices have passed through to domestic energy prices." The IMF said that total disbursements under both programmes now stand at roughly $4.8 billion. The lender said the programme has played a central role in restoring macroeconomic stability, improving confidence, and rebuilding external buffers in an environment of continued global uncertainty. According to the IMF, Pakistan’s growth momentum picked up in the first half of the current fiscal year, inflation remained contained, and the current account stayed broadly balanced. "Foreign exchange reserves also improved more than earlier projections, reaching about $16 billion by the end of December, up from $14.5 billion mid-year, it said.