KEY POINTS
- IMF, Pakistan in final phase of $7bn program review amid flood-driven fiscal strain
- Rapid Needs Assessment puts provincial flood losses at Rs650 billion
- GDP growth target cut to around 3.2 pc; FBR tax goal trimmed to Rs14 trillion
- IMF mission assessing revised budget’s compliance with fiscal, debt targets
ISLAMABAD: Pakistan and the International Monetary Fund (IMF) are in the final stage of a key review of the South Asian country’s economic programme, with both sides now holding policy-level discussions after completing technical assessments.
The release of a billion-dollar tranche by the IMF hinges on the review talks, expected to be concluded in the coming days.
Following the technical phase, the review mission will now assess whether Islamabad qualifies for the next loan tranche amounting to $1 billion, as the government seeks room to revise its budget targets following the recent flood devastation across several provinces.
Flood losses force fiscal rethink
According to The News, both sides have agreed in principle to adjust key budgetary targets after new estimates under the Rapid Needs Assessment (RNA) placed nationwide flood losses at around Rs650 billion.
The report said that the figure, compiled by the provinces, represents damage to crops, homes, and infrastructure — but the final tally could rise once it is validated by a consortium of international partners, including the World Bank, Asian Development Bank, European Union, and UNDP.
The floods have forced Islamabad to revisit its fiscal framework for the current financial year. The Federal Board of Revenue’s (FBR) tax collection target, which was earlier set at Rs14.13 trillion, is now being revised downward to Rs 14.001 trillion. Likewise, non-tax revenue estimates are also being trimmed accordingly.
Senior Finance Ministry officials, quoted in the report, said that the IMF’s Resident Mission has acknowledged the fiscal pressures caused by the floods and is evaluating how the adjustments can be incorporated into the ongoing Extended Fund Facility (EFF) and Resilience and Sustainability Facility (RSF) programs.
Growth target likely to be cut
The government’s original GDP growth target of 4.2 per cent for FY-26 is now under review, with officials indicating a downward revision.
The latest RNA findings suggest that GDP growth could drop to between 3.2 and 3.3 per cent, with the possibility of a further slide of 0.6 to 1 percentage point as flood damage deepens. Initially, losses were estimated at Rs 371 billion, but the updated figures nearly double that assessment.
According to the officials, while the government is trying to maintain development momentum, it will likely slow the release of Public Sector Development Programme (PSDP) funds in the first half of the year to keep the fiscal deficit and primary surplus within IMF-agreed parameters.
“The PSDP envelope of Rs1 trillion may remain unchanged on paper, but disbursements will be paced to manage fiscal space,” they added.
IMF assessing fiscal sustainability
The IMF mission, led by Nathan Porter, is now examining whether Pakistan’s revised fiscal plan remains consistent with the Fund’s debt sustainability and reform benchmarks.
Sources told Bloomberg that the review’s outcome will determine the release of roughly $1 billion in EFF funds and over $100 million under the RSF, contingent on Pakistan’s ability to meet its updated performance criteria.
IMF spokesperson Mahir Binici said in an earlier statement quoted by Dawn that the Fund will “assess whether the FY-26 budget and its spending allocations remain sufficiently agile to address the needs necessitated by the floods while safeguarding macroeconomic stability.”
Balancing recovery and discipline
Government officials maintain that Pakistan is not seeking exemptions but rather “policy flexibility” to manage post-flood rehabilitation costs. The Finance Division has communicated to the Fund that revenue performance remains on track despite disruptions.
Emergency allocations are to be made through reprioritisation and provincial coordination rather than fresh borrowing.
However, economists told Dawn that any further fiscal loosening could jeopardise the IMF’s confidence in Pakistan’s reform path.
“The Fund will likely demand stronger documentation of flood-related spending and independent verification of damage estimates before endorsing any deviations from agreed targets,” one Islamabad-based analyst said.
Broader implications
The review is part of Pakistan’s $7 billion Extended Fund Facility, augmented by the Resilience and Sustainability Facility, which together underpin the government’s macroeconomic program.
Ongoing review completion and subsequent tranche release will be crucial to maintaining external financing flows, exchange rate stability, and investor confidence as Pakistan contends with renewed climate shocks and fragile fiscal buffers.
