Pakistan Faces New IMF Conditions as Talks Enter Crucial Stage
The International Monetary Fund (IMF) has shared the first draft of the Memorandum of Financial and Economic Policies (MEFP) with Pakistani authorities, setting the stage for negotiations toward a staff-level agreement (SLA).
The IMF review mission is expected to remain in Islamabad until around the middle of next week. If both sides reach consensus on the MEFP, they will move toward an SLA. Otherwise, the discussions will continue virtually.
The IMF has raised concerns over Pakistan’s breach of the power sector circular debt target for June 2026. Circular debt stood at Rs. 1,675 billion at the end of June. The government has budgeted Rs. 830 billion in power sector subsidies for FY27, while the IMF has asked Pakistan to eliminate the cross-subsidy for electricity consumption of up to 200 units and replace it with a targeted subsidy through BISP from January 2027.
The government is also expected to secure parliamentary approval for legislation related to the Sovereign Wealth Fund. Meanwhile, the FBR’s annual tax collection target of Rs. 15,264 billion will remain unchanged. The tax authority exceeded its target by Rs. 27 billion during the first quarter of the current fiscal year and has not requested a revision of the annual target.
The IMF has also pushed for a higher projection of the current account deficit, potentially up to $4 billion for FY27. The Ministry of Finance had earlier projected the deficit at around $2.7 billion, while the Annual Plan for 2026-27 placed it at $3.599 billion.
According to the Annual Plan, the current account deficit could remain around $3.599 billion if the Gulf ceasefire results in a deal among the parties. A prolonged Gulf conflict could put pressure on Pakistan’s external sector by disrupting trade with GCC countries, affecting exports of goods and services and potentially reducing remittance inflows from more than one million Pakistani workers in the Gulf. Higher global energy costs could also increase Pakistan’s oil import bill and widen the trade deficit.
Pakistan recorded a current account deficit of $543 million during July-August of FY27, down 36 percent from the $853 million deficit recorded during the same period of FY26, according to the State Bank of Pakistan (SBP). The IMF also conducted Article IV consultations, a regular review of a member country’s economic and financial conditions, policies, and risks.
Pakistani authorities told the IMF that GDP growth would remain around 4 percent in FY27, while the SBP has projected real growth between 3.5 percent and 4.5 percent. The government’s 4 percent growth target includes agriculture growth of 3.6 percent, industrial growth of 4.5 percent and services growth of 4.2 percent.
CPI-based inflation is projected at 8.2 percent for the fiscal year, while the IMF expects average inflation to remain higher, at 8.5 percent to 9.5 percent.
