MediumIV Macro Policy & Sovereign Debt7 October 2026, Wednesday
IMF and Pakistan reach staff-level deal on 1.2 billion dollar tranche
IMF staff reached a staff-level agreement with Pakistan on 7 October on the fourth review of the Extended Fund Facility and the third review of the Resilience Facility. If the Executive Board approves, about 1.2 billion dollars will be released.
According to the IMF's statement of 7 October, the deal provides about 1.0 billion dollars (SDR 760 million) under the Extended Fund Facility and about 210 million dollars (SDR 154 million) under the Resilience and Sustainability Facility. These disbursements will bring total drawings under the two programmes to about 5.7 billion dollars. A staff-level agreement means IMF staff and the government have agreed on policy conditions, but the money still awaits Board approval; no Board date has been set.
The team, led by Iva Petrova, held talks in Karachi and Islamabad from 23 September to 7 October. The IMF estimates growth at 4% over the first three quarters of fiscal 2026 and 3.6% for the full year. Headline inflation eased to about 10.3% in September after peaking in May. Gross reserves rose to about 21.5 billion dollars at the end of September.
The Fund wants the 2027 budget to rest on a primary surplus of 2.0% of GDP and the fuel subsidy programme to be removed quickly. A News reports that most of Pakistan's energy imports pass through the Strait of Hormuz, and that the energy shock from the Middle East conflict has slowed growth. The IMF listed the risks as geopolitical tension, volatile energy prices and tighter global financing conditions.
Talay assessment
Bottom line
The deal covers Pakistan's foreign currency needs before winter, at the price of ending fuel subsidies and running a 2.0% primary surplus. With inflation at 10.3% and energy imports tied to Hormuz, those conditions are politically demanding. The most likely path is Board approval, with the subsidy debate carried over to the next review.
Likely effects
- Pakistan's external financingPositiveWeeks
The 1.2 billion dollar tranche bolsters gross reserves of 21.5 billion dollars and lifts total drawings under the two programmes to about 5.7 billion dollars.
- Fuel pricesNegative1–6 months
Removing the subsidy programme raises pump prices and could slow the decline in inflation from 10.3%.
- Trade with TürkiyePositive1–6 months
Stronger reserves ease Pakistan's import payments and somewhat reduce collection risk for Turkish exporters.
Possibilities, ranked
- 1Board approval comes65%
The Executive Board approves the tranche and the government sets out a timetable for scaling back fuel subsidies.
Watch: IMF Executive Board calendar and Pakistan's fuel price announcements
- 2Approval is delayed25%
Subsidy or gas arrears conditions become prior actions and the Board meeting is postponed.
Watch: Prior actions and finance ministry statements
- 3Energy shock strains the programme10%
A new Hormuz-driven price spike erodes reserves and the budget target is revised.
Watch: Post-September reserve data and Brent futures
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Tranche to be released▲ $1.2bn
- Gross reserves (end-September)▲ $21.5bn
- Headline inflation (September)▼ 10.3%