WASHINGTON (THE THURSDAY TIMES) — Pakistan’s economic stabilisation efforts have begun to take hold, with stronger growth, a rare current account surplus and improved external balances, according to the International Monetary Fund’s latest review. Yet despite this progress, the IMF cautions that the recovery remains fragile and susceptible to climate shocks, political uncertainty and reform fatigue. This dual narrative shapes the Fund’s second review under the Extended Fund Facility and the first under the Resilience and Sustainability Facility.
The IMF reports that continued strong policy implementation has allowed Pakistan to withstand multiple shocks over the past year. Growth in fiscal year 2025 exceeded expectations, supported by tighter monetary policy, improved market sentiment and a rebound in industrial activity. However, the severe monsoon floods have moderately weakened the outlook for FY26, underscoring both the volatility of the economic environment and Pakistan’s acute climate vulnerability.
Financial conditions and external balances have remained favourable, with Pakistan posting its first current account surplus in fourteen years and continuing to rebuild foreign exchange reserves. The IMF highlights this as a significant marker of stabilisation for an economy long characterised by external fragility. Headline inflation has also been contained, despite temporary increases in food prices driven by flood related supply disruptions, suggesting that policy tightening is gaining traction.
The IMF board has approved nearly 1 billion dollars in financing under the Extended Fund Facility and a further 200 million dollars under the climate focused Resilience and Sustainability Facility, bringing Pakistan’s total receipts under the programmes to about 3.3 billion dollars. These disbursements are intended to reinforce macroeconomic stability and support reforms in public finances, taxation and climate adaptation.
Even with these gains, the IMF warns that major challenges remain. The floods, which caused significant damage to agriculture and infrastructure, have highlighted Pakistan’s extreme exposure to climate change and the urgent need for resilience investment. The Fund stresses that adaptation measures must become a core policy priority.
Structural reforms remain incomplete as well. Pakistan must broaden the tax base, improve public financial management and accelerate reforms of loss making state owned enterprises. Without consistent reform momentum, the IMF cautions that fiscal gains could erode and investor confidence may weaken.
Programme risks remain elevated. Political uncertainty, global commodity price volatility, large external financing needs and the potential for policy slippage all threaten the durability of the recovery. Public debt remains high and poverty pressures persist, placing additional responsibility on the government to maintain targeted social protection.
Despite these concerns, the overall tone of the IMF’s assessment is cautiously optimistic. The Fund acknowledges Pakistan’s progress in stabilising its economy after a turbulent period and notes that the reform agenda, if sustained, has the potential to deliver more durable and inclusive growth. The coming year, it says, will test Pakistan’s ability to deepen reforms while managing the effects of climate uncertainty and political complexity.
