Talks between Pakistan, IMF mission go virtual amid regional volatility

ISLAMABAD: The ongoing talks between an International Monetary Fund (IMF) staff mission and authorities in Islamabad had to be converted to virtual mode on Monday due to the regional situation following the attack on Iran by the United States and Israel.

The IMF mission, led by Iva Petrova, had to immediately relocate to Istanbul following an advisory issued by the money lending agency’s headquarters, disrupting a series of sectoral meetings planned for the day.

The remaining schedule of meetings, however, will remain intact and will progress through video link between Islamabad and Istanbul.

“An IMF mission led by Iva Petrova has started discussions with the authorities in Karachi and Islamabad on the third review of Pakistan’s Extended Fund Facility (EFF) arrangement and the second review of the Resilience and Sustainability Facility (RSF). Discussions will continue to be held virtually,” the Fund said in a statement.

Earlier in the day, the two sides had a kick-off meeting presided over by Finance Minister Muhammad Aurangzeb. The two sides broadly touched upon the emerging regional security situation but were equally uncertain about how the crisis would play out and for how long.

The two sides said they would closely monitor the evolving situation and discuss contingency measures as the engagements progressed.

The Fund’s mission began discussions with the State Bank of Pakistan and the business community in Karachi on February 25.

The formal kickoff meeting took place on Monday, which will be followed by further technical engagements with relevant ministries and entities until this weekend. Meetings will then progress to policy-level talks early next week, with a final wrap-up meeting with the finance minister planned for March 11.

The discussions on Monday revolved around third review of the $7bn Extended Financing Facility (EFF) and 2nd review of $1.1bn Resilience & Sustainability Facility (RSF).

According to a handout from the finance ministry, during the meeting with the IMF mission, Finance Minister Muhammad Aurangzeb underscored that since the successful completion of the previous review, Pakistan had continued to “consolidate the hard-earned gains in macroeconomic stability” achieved under EFF and RSF programmes.

“He emphasised the government’s firm resolve to maintain fiscal discipline and safeguard macroeconomic stability, terming these achievements as the result of sustained and difficult reforms,” the statement said.

It further said that the finance minister highlighted that structural reforms, particularly in taxation and the energy sector, remained central to the government’s reform agenda. He noted that comprehensive transformation efforts in tax administration, encompassing improvements in people, processes and technology, were underway with “strong leadership at the highest level”.

He also told the IMF mission that steps had been taken to fully operationalise the Tax Policy Office to ensure that future taxation policies were guided by economic principles aimed at supporting sustainable growth.

On the privatisation and state-owned enterprise reform agenda, Aurangzeb reaffirmed the government’s commitment to advancing key transactions and restructuring initiatives during the year. He observed that recent developments had demonstrated “growing investor confidence and a renewed appetite among domestic investors, reflecting trust in the economy’s direction and reform trajectory”, the statement said.

The minister added that the privatisation and restructuring process would continue in a transparent and orderly manner. He also outlined progress on rightsizing the federal government, including the merger of ministries and closure of certain entities, as part of broader public sector reforms aimed at improving efficiency and governance, the statement said.

He reiterated the government’s commitment to an export-led growth strategy, supported by trade facilitation measures and tariff rationalisation to enhance competitiveness and reduce import dependency over time.

Aurangzeb further apprised the mission of the government’s response to flood-related challenges during the fiscal year, noting that the availability of fiscal buffers enabled timely rescue and relief efforts. He observed that maintaining macroeconomic stability had strengthened the country’s resilience to external and climate-related shocks, the handout said.

Regarding the country’s economic performance, the minister said that recent indicators pointed toward a gradual recovery, with positive trends in growth and key sectors.

“However, he acknowledged emerging global headwinds, including evolving geopolitical developments and volatility in international energy markets, which pose potential risks. He informed the IMF mission that a high-level committee has been constituted to closely monitor the evolving situation and ensure coordinated policy responses,” the statement said.

He also emphasised that while stabilisation efforts were necessary to restore macroeconomic balance, the government remained “mindful of the social impact” and would continue to pursue policies aimed at enhancing social spending to protect the vulnerable population.

Meanwhile, Petrova thanked the minister for the comprehensive briefing and shared insights, including from the mission’s discussions with authorities in Karachi on the ongoing reviews under the EFF and RSF. Both sides agreed to continue further discussions virtually in the coming days, the statement concluded.

Significance of reviews talks

It is worth mentioning that the finance minister said last week that Pakistan was well-positioned for a successful review of its loan programme.

The review talks, ending March 11, are of greater significance as both sides have to review the performance of the progammes for the half-year ending on December 31, 2025 as well as forward-looking preparations, including budget proposals based on performance this year, while also setting broad contours of the upcoming budget.

This would involve provincial reviews for now and the future, particularly those relating to provincial finances, including agriculture income tax and governance-related challenges and an action plan to address those weaknesses resulting in losses worth trillions of rupees.

In this regard, procurement and accountability agencies would be under added scrutiny, including their independence, institutional capacities, processes and performances.

The programme’s performance as of the end of December 2025 — the period under review — has mostly been up to the mark, albeit with a substantial revenue shortfall, which authorities believe could be reduced following a recent super tax decision by the Federal Constitutional Court in the government’s favour.

However, the overall tax-to-GDP ratio remains within limits. The two sides will also review all macroeconomic indicators for the third quarter still in progress.

The power sector would also remain under added scrutiny given volatile policy making in the recent months, including those relating to the industrial sector, residential fixed charges and so on, although circular debt numbers are within the target range.

On the positive side, Pakistan has met almost all quantitative performance criteria for the period under review. However, it is lagging behind in indicative targets and structural benchmarks, which could affect future programme implementation.

Given the biannual reviews of the $7bn EFF and the $1.1bn RSF, the two sides will have to agree on past performance as well as forward-looking implementation plans.

Upon the successful completion of the review, Pakistan will be eligible for the disbursement of about $1bn under the EFF and another $200m under the RSF by the end of April.

On the technical side, Pakistan will likely meet almost all seven quantitative performance indicators.

Net international reserves were likely to remain slightly lower than the $7bn benchmark for September 2025 and below $6bn for December 2025 against the $6.5 bn benchmark.

The central bank’s net domestic assets are estimated at around Rs12.5-13.5 trillion versus the ceiling target of Rs14.9-15.1tr for Sep and Dec 2025.