IMF acknowledges Gov’t policies in navigating Middle East conflict

The IMF team has reached SLA with the Pakistani authorities on the fourth review of Extended Fund Facility (EFF) and a third review of Resilience and Sustainability Facility
(RSF).

According to analysts, the fund recognizes program implementation has remained broadly on track despite a challenging external environment.

AKD research said that improving macroeconomic conditions have laid strong foundation for equities outper-formance and any positive development on Middle East conflict would serve as a key
catalyst.

Staff level agreement reached for US$1.2bn tranche

The IMF team has reached staff-level
agreement (SLA) with the Pakistani authorities on the fourth review of EFF and third review of the 28-month RSF. The agreement is subject to the approval of the IMF’s Executive Board,
which will enable release US$1bn (SDR 760mn) under EFF and US$210mn (SDR 154mn) un-der the RSF, taking total disbursement under the two arrangements to US$5.7bn.

IMF praises Government effective steering through Middle East conflict: Under the IMF program (EFF), Pakistan has successfully navigated the impact of the Middle East conflict and
strong policies have helped preserve macroeconomic situation. Real GDP growth is estimat-ed at 3.6% for FY26 despite the momentum was weakened due to higher oil prices and sup-
ply chain disruptions. Headline inflation moderated to 10.3% after peaking in May’26, while core inflation remained contained.

The current account remained contained and helped for-eign exchange reserves to reach record ~US$21.5bn at Sep’26. Sovereign rating upgrades and renewed international market access reflect stronger policy credibility.

However, risk is still high, particularly from geopolitical tensions, volatile energy prices, tighter global finan-cial conditions, and trade disruptions.

Fiscal policies to focus on growth while maintaining discipline: Revenue administration reforms and supportive tax policy are crucial to attain 2.0% of primary surplus target for FY27
in order to place public debt on a durable path.

Medium term tax policy should be growth friendly while maintaining revenues and reducing distortions. IMF acknowledges progress in strengthening public financial management and advises to reduce debt roll over risks and servicing costs amid elevated gross financing needs, while developing the domestic securities market and enhancing the investor base.

Meanwhile, Fund stresses to increase health and education spending to 2.8% of GDP in FY27, however fuel subsidy should be ended promptly and future fuel subsidy should be limited, timebound, targeted and within FY27 budget if required in case of fuel shock.
Maintaining appropriate monetary policy and exchange rate flexibility: SBP should contin- ue maintaining appropriately tight monetary policy to ensure inflation return to its targeted
range, while exchange rate flexibility should continue to serve as an important shock absorb-er.

Advancing energy sector viability: Energy sector priorities include improving sector efficien-cy, DISCOs privatization, deepening electricity market competition, maintaining gas sector cost recovery, and reducing unaccounted for gas losses.

Middle East conflict settlement to boost investor sentiment: Improving macroeconomic conditions as acknowledged by IMF have laid strong foundation for equities outperformance.
Easing inflationary pressures would reduce probability of monetary tightening.

Moreover, any positive development of Middle East conflict would serve as a key positive trigger for market as it paves the way for monetary easing. We recommend investors to maintain expo-sure to the Banking, E&P, Fertilizer, OMC, Cement, Textile, Auto, and IT sectors.

Read More: DISCO Losses Fall Below IMF Targets