Pakistan and the International Monetary Fund formally opened negotiations in Islamabad this week for the fourth review of the country’s $7 billion Extended Fund Facility and the third review of its $1.4 billion Resilience and Sustainability Facility, with successful completion of both potentially unlocking around $1.2 billion in combined fresh financing.

Finance Minister Muhammad Aurangzeb held a kick-off meeting with the IMF mission, led by Iva Petrova, according to the Ministry of Finance. The mission arrived in Islamabad after spending the past week holding preliminary discussions in Karachi, where it also began Article IV consultations, a broader annual assessment of Pakistan’s overall economic health that runs alongside the specific programme reviews. The mission is expected to remain in the country for close to two weeks, with talks continuing into the first week of October, and sources say the full process is expected to run until October 7.

The stakes are fairly concrete. If both reviews are completed successfully, Pakistan would become eligible for roughly $1 billion under the EFF, equivalent to about 760 million Special Drawing Rights, along with a further $200 million under the RSF. Officials expect the combined disbursement, if approved, to arrive by the end of November or early December, following the same pattern as previous tranches under the programme, which have typically followed a staff-level agreement by two to three months.

The scope of the talks is broad. Discussions will assess Pakistan’s economic performance using data through June 30, 2026, and cover the Sovereign Wealth Fund, efforts to reduce circular debt, the country’s continued reluctance to fully deregulate the sugar sector, the current account balance, the primary surplus, foreign exchange reserves and the exchange rate. Separately, the Federal Board of Revenue will hold its own sessions with the Fund focused on broadening the tax base and advancing reforms, while provincial governments will discuss measures to improve their own tax and non-tax revenue collection. The Ministry of Energy is expected to brief the mission on circular debt and reforms within the energy sector, and the National Accountability Bureau and Federal Investigation Agency are due to update the Fund on measures against money laundering and terrorist financing.

One item likely to draw particular attention is Prime Minister Shehbaz Sharif’s recently launched petrol relief scheme, which offers Rs100 per litre off fuel for motorcycles, rickshaws and small cars up to 800cc. Pakistani officials are expected to brief the IMF directly on the scheme’s design and cost, a conversation that carries some tension given the Fund’s historical preference for targeted, means-tested support over broader subsidies that can blur fiscal targets.

The negotiations are unfolding against a backdrop of real economic pressure. Disruptions to Gulf oil supplies stemming from the conflict that began with US and Israeli strikes on Iran earlier this year have pushed up Pakistan’s import bill and domestic fuel prices, complicating the broader effort to sustain economic recovery while keeping consumers from bearing the full brunt of global price swings.

Pakistan’s relationship with the Fund under this programme dates to September 2024, when the Executive Board approved the 37-month EFF. The country received $1.32 billion in May after the Fund’s board completed the third review, according to the State Bank of Pakistan, continuing a steady drip of disbursements that has kept the programme broadly on track despite periodic friction over specific policy commitments, including the sugar sector and, increasingly, the petroleum levy.

Officials from the Establishment Division and Federal Board of Revenue also briefed the mission on the digitised asset declaration scheme introduced under Section 15-A of the Civil Servants Act, with the resulting declarations expected to be published by December 2026 or January 2027, part of the wider governance and transparency commitments tied to the programme.

Whether the reviews conclude on schedule will depend heavily on how convincingly Pakistan can defend its fiscal numbers, including a petroleum levy collection that has already come in well above target for the year, a detail that is likely to feature prominently once formal discussions on revenue performance get underway.

Compiled by the Weekly PK Business Desk.