In a major diplomatic setback for India, the International Monetary Fund (IMF) Executive Board approved two crucial financial packages for Pakistan, totaling $2.3 billion. The approval comes despite India’s unsuccessful attempt to block the deal during the board meeting.
The IMF sanctioned the release of a $1 billion second tranche of Pakistan’s Extended Fund Facility (EFF) and a new $1.3 billion Resilience and Sustainability Facility (RSF). The approval of these packages marks a significant victory for Pakistan, with its economic team, led by Finance Minister Muhammad Aurangzeb and Secretary Finance Imdad Ullah Bosal, playing a key role in securing the approval after initial setbacks.
Pakistan’s economic team worked diligently to meet IMF conditions, with Deputy Prime Minister Ishaq Dar leveraging his strong ties with the Pakistan Peoples Party (PPP) to ensure the implementation of critical measures, such as the introduction of Agriculture Income Tax laws in Sindh and Balochistan. These efforts helped meet several requirements, which enabled the IMF’s endorsement.
As part of the deal, Pakistan will receive the $1 billion tranche immediately, while the $1.3 billion RSF will be disbursed over the next 28 months. With this approval, Pakistan’s total disbursements under the EFF will reach $2.1 billion.
Despite having only a 2.7% voting share, India’s attempt to block the packages was unsuccessful, marking another diplomatic defeat for India in less than 72 hours. This follows the recent loss of five Indian fighter jets in a confrontation with the Pakistan Air Force.
The IMF’s approval is a critical step for Pakistan, which had to adjust certain policies, including reducing tax targets and revising its approach to foreign investment. Additionally, Pakistan will introduce a carbon levy starting in July and increase water usage charges next year as part of the RSF conditions. Pakistan has also agreed to commence a study to phase out existing Special Economic Zones (SEZs) by 2035.
Earlier this year, an IMF team reached a staff-level agreement with Pakistan for the first review of the EFF and a new 28-month arrangement under the RSF, giving Pakistan access to $1.3 billion over the period.
The IMF deal is expected to help Pakistan continue fiscal consolidation, reduce public debt, and create space for social spending while avoiding excessive current expenditure. This approval represents a significant step in Pakistan’s ongoing economic reforms aimed at stabilizing its financial position and fostering sustainable growth.
