Imf loan to Pakistan

 Pakistan's Economic Lifeline: Decoding the Latest IMF Loan

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Pakistan's ailing economy has again received a vital, though controversial, lifeline in the shape of a loan from the International Monetary Fund (IMF). A recent milestone on May 9, 2025, saw the IMF Executive Board finish the first review of the Extended Fund Facility (EFF) arrangement of Pakistan. The positive review opened the door for an instant release of about $1 billion (SDR 760 million). This takes the total disbursements made under the present 37-month arrangement to around $2.1 billion (SDR 1.52 billion).

Complementing this financial assistance, the IMF also sanctioned Pakistan's application for an RSF arrangement, providing access to approximately $1.4 billion (SDR 1 billion). The facility will help support Pakistan's initiatives to develop resilience against natural disasters and foster overall macroeconomic stability in the context of climate-related stresses.

Why This Loan Matters

Pakistan's economy has been experiencing severe headwinds in the form of high inflation, a large external debt burden (which currently stands at $131 billion in 2024), and low foreign exchange reserves. The IMF approval is an important step in stabilizing the economy and restoring confidence. As per the IMF, Pakistan's policy actions under the EFF have already started paying dividends, as inflation dipped to an all-time low of 0.3% in April 2025 and external buffers improved. The State Bank of Pakistan has also managed to reduce the policy rate by a hefty 1100 basis points since June 2025 because of these gains.

The disbursed funds are anticipated to give a much-needed boost to Pakistan's balance of payments, enabling the nation to settle its current financial liabilities and import critical commodities. The RSF money will prove vital in the long term, enabling Pakistan to invest in climate-resilient infrastructure and adopt sustainable lifestyles to counter the effects of environmental adversity.

Conditions Attached

As with every IMF loan, this financial support is not without conditions. The EFF program mandates Pakistan to adopt good macroeconomic policies and structural reforms. Some of the top priorities are:

Widening the tax base: Raising more revenue from under-taxed sectors and enhancing tax system equity and efficiency.

Fiscal discipline: Sustaining spending discipline at the federal and provincial levels to achieve sustainability.

Energy sector reforms: Sustaining on-time application of power tariff changes and hastening cost-side reforms to curb circular debt and enhance the sector's viability.

Monetary policy: Sustaining a rightly tight and data-sensitive monetary policy to maintain inflation anchored.

Exchange rate flexibility: Permitting greater exchange rate flexibility to respond to external and domestic shocks and facilitate reserve rebuilding.

Financial stability: Timely resolution of undercapitalized financial institutions and sustained monitoring of the financial sector.

Structural reforms: Trade and investment simplification, deepening reform of state-owned enterprises (SOEs), and enhancing institutions of governance and anti-corruption.

Climate resilience: Enhancing public investment procedures, enhancing the use of water resources, and enhancing response coordination for natural disasters.

India's Concerns and Abstention

Notably, India voted against this loan at the IMF Executive Board meeting. India has expressed vigorous objections to granting financial support to Pakistan on account of Pakistan's history with regard to past IMF programs and suspected misuse of the funds for underwriting cross-border terrorism.

India's official communiques emphasized that Pakistan has a history of depending on IMF bailouts without making sustainable economic reforms. They also expressed concern regarding the role of Pakistan's military in economic matters, which could result in policy slippages. Although recognizing that a number of other member nations had these concerns, the procedural rules of the IMF did not allow for a formal "no" vote, so India abstained as a sign of strong dissent.

Economic Outlook of Pakistan

Even with the near-term relief of the IMF loan, the economic outlook of Pakistan is still weak. Pakistan's real GDP is expected to grow at 2.5% in FY2025, the same as FY2024, with a moderate increase to 3.0% in FY2026, on the basis of continued implementation of reforms. The World Bank is marginally more positive, estimating a growth of 2.7% in the current fiscal year through June 2025, rising to 3.1% in FY26 and 3.4% in FY27, assuming macroeconomic stabilization and critical reforms persist.

But both institutions point out that risks are still high because of high debt burdens, policy and global trade uncertainty, and exposure to climate-related shocks. The effect of current military tensions with India also casts a serious risk to Pakistan's economic stability and has the potential to upset the IMF program as well as availability of other external financing.

Conclusion

The current IMF loan offers a much-needed breathing space to Pakistan's troubled economy. The money, as well as the conditions that go with it, provide a course towards stabilization and even recovery. But the ultimate success depends upon the uniform adoption of hard reforms and the capacity to overcome strenuous domestic and outside challenges, such as geopolitical tensions. The world at large, and the neighbors of Pakistan, will be keeping close tabs on whether this latest bailout will finally put an end to the dependency cycle and open the door for sustainable economic development.